General Motors Company (NYSE:GM) has certainly made a tremendous comeback since 2008, after having to declare bankruptcy. But there has been little for investors to cheer about. Back in late 2010, the company pulled off its IPO at $33 a share. But now GM stock is at only $37.20.
To put things into perspective, InvestorPlace.com’s Dana Blankenhorn has noted: “Ever since the 2008 crash and government bailout, General Motors stock has been treated like dirt. No matter what GM does, it can’t get out of first gear.”
I actually think this is an understatement!
Of course, Wall Street can be inexplicable. Yet eventually investors will recognize the value. Hey, this has happened with other stocks that languished for a long time, such as Microsoft Corporation (NASDAQ:MSFT), right?
OK then, so would GM stock be a good play right now? Or should investors hold off? Well, to see, let’s take a look at 3 pros and cons on General Motors:
3 Pros On GM Stock
Momentum: For the past two years, General Motors has posted record earnings, net revenues, EBITDA and free cash flows. As for last year, revenues increased by 9.2% to $166.4 billion and free cash flows came to $6.9 billion, up $4.7 billion from the previous year.
Then again, General Motors has continued to pump out popular cars, with global sales at 10 million (making the company the No. 3 player). A big part of this has been the continued success in North America. But of course, China remains a major factor as well. Last year GM reported 3.87 million car sales in the country. Keep in mind that the company sells more in China than any country, including the U.S.
But GM has also been judicious with discounts and promotions. For the most part, GM is focused on making sure it makes profits, not just on increasing marketshare.
Innovation: One of the hottest categories in technology is the auto industry, as seen with the efforts with operators like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) and Tesla Inc (NASDAQ:TSLA). The good news is that GM has been ramping up its investments. To this end, the company made a $500 million investment in Lyft (a top ride-sharing startup) as well as a $1 billion acquisition of Cruise Automation (a developer of autonomous car systems).
Already there are signs that GM is getting traction. For example, the company is testing over 40 autonomous Bolt EVs. But there are also some other innovations, like Maven. This is a mobile platform that allows a person to search and reserve a car and unlock it with a smartphone. According to GM: “With more than 25 million customers around the world projected to use some form of shared mobility by 2020, Maven is a key element of our strategy to changing ownership models in the automotive industry.”
It’s important to note that GM has the advantage of leveraging its experience with OnStar, which has been around for two decades. In fact, during this time, the system has logged about 1.5 billion customer interactions.
Yield & Valuation: GM has certainly been shareholder friendly. Last year, the company returned a hefty $4.8 billion — in a combination of share buybacks and dividends. In fact, GM stock has a nice yield of 4.1%.
But the valuation is also attractive. Consider that the forward price-to-earnings ratio is at a lowly 6.1X. True, this may be deserved for a company that is showing declining growth. But as for General Motors, the company expects to increase the top line for 2017.
In other words, the stock does look like a great value play right now.