After a 6% rise this year, at the current price near $40 per share, we believe General Motors stock (NYSE: GM) has a moderate upside in the near term. GM stock has increased from $36 to $38 since the start of the year compared to the S&P 500 which increased almost 10% in 2020. The stock has underperformed the market primarily due to a huge fall in sales volume in Q2 2020 across the world. For Q3 2020 revenue was flat at $35.5 billion while earnings improved to $2.80 compared to $1.62 in the same period of the previous year. Revenue and earnings were driven by a 10% growth in sales volume across Asia/Pacific, Middle East and Africa regions. We expect revenue and volume recovery to continue in Q4 2020 and the stock price to rise along with it.
The company has seen growth in revenue fall over recent years, while its P/E multiple has improved. We believe the stock is likely to continue growing in the near term. Our dashboard Buy Or Sell General Motors Stock? provides the key numbers behind our thinking.
General Motors’ revenue fell 6.7% from $147 billion in 2018 to $137.2 billion in 2019. Margins also fell from 5.4% to 4.9% during this period. On a per share basis, earnings went down from $5.61 to $4.62.
During the same period, the P/E multiple increased from 6x to 7.9x. The P/E improved in recent weeks as the company and sector are showing signs of recovery. Currently the multiple stands at 8.4x.
Where Is The Stock Headed?
The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. General Motors’ revenues and earnings took a hit for the first half of 2020, but in Q3 reported flat revenue and a growth in earnings compared to the same period in 2019. Q3 2020 also saw sales volume recover compared to Q2 2020 where we saw a huge decline due to lockdowns affected across regions. Asia/Pacific, Middle East and Africa region saw a 10% y-o-y hike in volume while vehicle sales in North America were down by 11% y-o-y.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. As per General Motors’ valuation by Trefis, we have a price estimate of $45 per share for GM’s stock, reflecting almost a 15% potential rise from its current level.
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November 12, 2020 at 05:40AM
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General Motors Has A 15% Upside After Positive Q3 Results - Trefis
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