Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put General Motors (NYSE: GM) stock into this equation and find out if it is a good choice for value- oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
Price-Earnings Ratio
A key metric that value investors always look at is the Price-Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, GM stock has a trailing twelve months PE ratio of 5.71, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.52. If we focus on the long-term PE trend, the current PE of GM stock puts it below its midpoint of 6.01 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for General Motors stock, suggesting that it can be a solid entry point.
Moreover, the stock’s PE also compares favorably with the Zacks Auto-Tires-Trucks Market sector’s trailing 12 months PE ratio, which stands at 9.95. At the very least, this indicates that GM stock is relatively undervalued right now, compared to its peers.
We should also point out that General Motors stock has a forward PE ratio (price relative to this year’s expected earnings) of 5.40, so it is fair to say that a slightly more value-oriented path may be ahead for GM stock in the near-term, too.
Price/Sales Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, General Motors stock has a P/S ratio of about 0.36. This is much lower than the S&P 500 average, which comes in at 3.09 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, General Motors currently has a Value Score of A, putting it into the top 20% of all stocks for which we use this metric. This makes General Motors stock a solid choice for value investors.
The PEG ratio for General Motors stock is just 0.61, a level that is lower than the industry average of 1.24. The PEG ratio is a modified PE ratio that takes into account the company’s earnings growth rate.Clearly, GM is a solid choice on the value front from multiple angles.
What About GM Stock Overall?
Though General Motors might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and a Momentum Score of A. This gives GM a Zacks VGM score — representing its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. In the current quarter, there has been one upward revision in the past 60 days compared to one downward revision, while there has been four upward revisions in 2019 compared to one downward revision in the same time period.
As a result, the current quarter consensus estimate declined 1.05% in the past two months, whereas the current year estimate increased 1.2%. You can see the consensus estimate trend and the recent price action of GM stock in the chart below:
General Motors Company Price and Consensus
Owing to the bearish estimate trends, the stock carries a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
The Bottom Line on GM Stock
General Motors is an inspired choice for value investors, as it is hard to beat its incredibly attractive valuation. However, with a sluggish industry rank (bottom 24% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has underperformed the market overall, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first Once that happens, GM stock could be a compelling pick.
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General Motors Company (GM): Free Stock Analysis Report
