Despite the challenges posed by high inflation and market volatility, leading auto manufacturer General Motors Company (GM) has continued to perform well. The stock has gained 8.6% year-to-date to close the last trading session at $36.52.
In this piece, I will discuss the underlying factors that make GM a good investment.
GM beat Wall Street estimates in the fiscal fourth quarter, reporting net sales of $43.11 billion compared to the expected $40 billion and an adjusted EPS of $2.12 compared to the expected $1.69. The company's profits for the fiscal year 2022 were $14.50 billion, which was close to the upper range of its projected earnings.
GM is speeding up the production of various models as well as launching new electric vehicles such as the Chevrolet Silverado EV, Blazer EV, and Equinox EV. GM aims to maintain its target of manufacturing 400,000 EVs in North America by the first half of next year.
GM also anticipates its net income allocated to stockholders for the fiscal year 2023 will be in the range of $8.70 billion to $10.10 billion. The company projects its adjusted EBIT to be between $10.50 billion to $12.50 billion and estimates that its adjusted EPS will fall between $6 to $7.
Just like the rest of the world, GM is exploring the use of ChatGPT as part of its collaboration with Microsoft Corporation (MSFT). GM’s Vice President Scott Miller said that the chatbot could be used to access information on how to use vehicle features, program functions, or integrate schedules from a calendar.
Moreover, it was reported that GM’s electric vehicles would be featured in some Netflix, Inc (NFLX) shows and films. According to both companies, this collaboration reflects the growing excitement about an all-electric future in society.
This could benefit GM by increasing brand popularity and promoting its electric vehicles to a broader audience. This partnership with a popular streaming service like NFLX could also help GM position itself as a leader in the electric vehicle market and drive more consumer interest and sales.
Furthermore, in February, GM and GlobalFoundries (GFS) announced a strategic, long-term agreement establishing a dedicated capacity corridor exclusively for GM’s chip supply.
This first-of-its-kind agreement will enable GF to produce components for GM's primary chip vendors at GF's advanced semiconductor plant located in upstate New York, thereby bringing a crucial manufacturing process to the United States.
Here’s what could influence GM’s performance in the upcoming months:
Robust Financials
GM’s revenue increased 28.4% year-over-year to $43.11 billion for the fiscal fourth quarter that ended December 31, 2022. The company’s adjusted EBIT increased 33.8% year-over-year to $3.80 billion. Its net income attributable to shareholders increased 14.8% from the year-ago period to $2 billion, while its adjusted EPS rose 57% from the prior-year quarter to $2.12.
During the fiscal year 2022, GM saw a 23.4% year-over-year revenue growth, with the revenue amounting to $156.74 billion. The company's adjusted EBIT increased 1.3% year-over-year to $14.47 billion. In addition, GM's adjusted EPS rose 7.4% year-over-year to $7.59.
Discounted Valuation
In terms of forward non-GAAP P/E, GM’s multiple of 5.92 is 57.3% lower than the 13.86 industry average. Its 6.77x forward EV/EBITDA is 28.9% lower than the 9.52x industry average.
The stock’s forward Price/Book multiple of 0.67 is 73.4% lower than the industry average of 2.53. In terms of forward Price/Sales, it is trading at 0.32x, 63.7% lower than the industry average of 0.87x.
High Profitability
GM’s trailing-12-month net income margin of 6.34% is 38.5% higher than the 4.58% industry average. Its 13.98% trailing-12-month return on common equity is 24.2% higher than the industry average of 11.26%.
Furthermore, the stock’s trailing-12-month Capex/Sales of 13.52% is 320.7% higher than the industry average of 3.21%. Its trailing-12-month cash from operations of $16.04 billion is significantly higher than the $139.82 million industry average.
POWR Ratings Show Promise
GM has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has a B grade for Growth, consistent with its solid financial results in the latest quarter.
It has a B grade for Value is justified by its discounted valuation.
GM is ranked #22 out of 60 stocks in the Auto & Vehicle Manufacturers industry.
Click here to access GM’s Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
Despite prevalent supply chain issues, GM reclaimed its crown as the top automaker in the US from Toyota Motor Corporation (TM) after a 2.5% jump in sales in 2022.
Over the past three years, GM's net income increased at a CAGR of 13.9%, while its EBIT grew at a CAGR of 23%. Additionally, over the past five years, its EPS has grown at a CAGR of 94.5%. Such an extraordinary growth rate in EPS over five years implies that the company has been highly successful in increasing its profitability and EPS consistently.
Furthermore, the company aims to support its long-term expansion by making significant investments and forming strategic partnerships to secure essential raw materials for electric vehicle production.
Considering the company's strong financial position, impressive growth potential, and discounted valuation, investing in this automotive stock could be a prudent decision.
How Does General Motors Company (GM) Stack up Against Its Peers?
GM has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) or B (Buy) rating: Stellantis N.V. (STLA), Mercedes-Benz Group AG (MBGAF), and Isuzu Motors Limited (ISUZY).
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GM shares were trading at $35.47 per share on Monday morning, down $1.05 (-2.88%). Year-to-date, GM has gained 5.69%, versus a 0.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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