General Motors (GM) has been racing ahead in the stock market this year, with a Year-To-Date (YTD) gain of nearly 27%, placing it in the top 50 gainers in the S&P 500 Index. In contrast, rival automaker Ford (F) has been relatively stagnant. The burning question on investors’ minds: is GM poised to reach $100? Let’s delve into the financial indicators and forecasts for GM stock in this insightful piece.
GM’s Stellar Q1 Performance
In the first quarter of the year, GM reported revenues of $43.01 billion – a robust 7.6% increase Year-Over-Year (YoY), surpassing analysts’ expectations by a comfortable margin. The company’s adjusted earnings per share (EPS) also exceeded estimates, coming in at $2.62. The quarter was marked by a strong pricing environment, with average selling prices holding up better than anticipated. Bolstered by this performance, GM raised its full-year guidance, projecting an adjusted EPS between $9-$10 and adjusted automotive free cash flow ranging from $8.5 billion-$10.5 billion for 2024.
Depressed Valuations and Warren Buffett’s Exit
Despite its strong financials, GM’s next 12-month price-to-earnings (PE) multiple remains low at 4.76x, a significant discount from its historical averages. Interestingly, this undervaluation has not attracted value investors, as exemplified by Warren Buffett’s exit from GM stock last year. CFO Paul Jacobson acknowledged the company’s low PE multiple during the Q1 earnings call, signaling a commitment to improving GM’s valuation.
Risks on the Horizon for GM Investors
GM faces several challenges that contribute to its mid-single digit PE multiple. These risks include potential declines in vehicle prices, higher inventory levels, losses in the electric vehicle (EV) sector, struggling international businesses, and setbacks in the Cruise self-driving unit. These factors have cast shadows of doubt over GM’s future performance.
Dispelling Fears Surrounding General Motors
Despite looming risks, there are glimmers of hope for GM. The U.S. economy remains stable, with potential room for Federal Reserve rate cuts in the future. GM’s EV business projects volume growth and profitability, particularly in China, where the company aims for sustained profitability. CEO Mary Barra’s long-term commitment underscores a positive outlook for GM’s operations beyond its home turf.
The Road to $100: Analyst Projections
Analysts’ sentiment towards GM stock is generally bullish, with 13 out of 22 analysts rating it as a “Strong Buy.” The mean target price stands at $52.60, while the Street-high target price reaches $96. Should GM attain these goals, it could potentially double from its current levels. With its current undervaluation, GM appears primed for a reevaluation that could propel its stock price towards the $100 mark.