In the three months since it last reported earnings, General Motors Company (NYSE:GM) stock has been rising — though not nearly as much as it deserves. Hopefully, the upside for GM stock will continue starting today after the company delivered a solid fourth-quarter earnings beat.
On Tuesday morning, General Motors reported quarterly revenues of $43.9 billion that were well above estimates.
Net income for the quarter was $1.8 billion, or $1.19 per share, hurt by the strong dollar. Moreover, for the full year, the company sold 10 million vehicles — 2.78 million of them in the fourth quarter alone. GM also said that 56,000 employees will each be getting profit-sharing worth $12,000.
CEO Mary Barra previously reported that GM delivered 195,900 cars in January, and while that was down 4.9%, the average selling price was $34,500 — a new record for the month, indicating strong demand. The company is expecting earnings growth during 2017 and has increased its stock purchase program.
Since last reporting earnings, GM stock had risen 18%. But even at a Feb. 9 opening price of $37.50 per share, you’re looking at a price-to-earnings multiple of just 4.2 and a dividend that yields 4.1%.
I can’t stress this enough: This is not normal. Not when it’s “normal” in the current market for a yield of 3% to look appetizing, and where a P/E of 18 is considered average.
Maybe now, those ratios will change.
GM Stock: The Most Unloved Equity on The Street?
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.
Its January sales numbers, as good as they were, still disappointed the Street, where analysts noted inventory remains high. Analysts said they were hopeful on the numbers going into earnings, but their hopes were underwhelming. This came despite their noting that CEO Mary Barra has a habit of under-promising and over-delivering, and that her most recent statement on earnings, delivered Jan. 10, was positive.
This earnings report was well-telegraphed, but no one took notice. Analysts were expecting earnings of just $1.14 per share on revenue of $42.2 billion. The whisper number was a hoped-for $1.20 per share. And the actual figure came very close to the whisper.
Of the 26 analysts covering GM stock, however, slightly more than half rated it as a “hold” going into earnings. There was scant momentum toward a “buy,” though only for investors seeking income.
How High Can General Motors Fly?
Yes, investors are factoring in a lot more growth potential for TSLA, but even then, this is ridiculous.
GM makes money on its cars. GM is delivering a solid dividend of 38 cents per share that it covered three times with the last quarter’s $1.19 per share of earnings. GM has five times more cash than Tesla, its cash flow numbers are superior and its sales of electric vehicles are rising.
In a rational investment world, a stock like GM — which has been delivering these kinds of results for five years now — should be worth at least 10 times earnings, and its board should be under pressure to raise the dividend to maintain the yield.
But this is not a rational investment world. Such a result would mean a doubling of GM shares, which rose less than 1.5% on the latest news.
All this makes no sense, but it doesn’t have to.
GM stock appeals only to income investors. Those investors should be very happy today, knowing that their income looks secure. The rest can only marvel at how divorced from reality the stock price of General Motors has become.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.