Stock Valuation General Motors

The following stock valuation is about General Motors, a company I came across as I was searching for undervalued companies. I would not consider it as a typical dividend stock as the history of the company is not really impressive. But let’s see what a fair price for GM is and if I would consider it as an investment.

General Motors (GM) is an auto manufacturer based in Detroit, Michigan. The company produces cars and trucks under the Chevrolet, GMC, Buick, and Cadillac brands, makes and sells auto replacement parts, and also provides financing for vehicle purchases through its GM Financial arm. The company was founded in 1908 as General Motors Corporation, which entered bankruptcy in 2009 and emerged in its present form in 2010. It started to pay dividends again in 2014

Valuation

Currently GM is priced  at 36.71 USD per share.

Valuation_GM

If I take the weighted average of the 4 ratios according to the 5  year average the price would be at 52.1 USD. That means the current price is 29.2% below its 5 year average. The 5 year high was at 40.99 USD about three years ago, so currently the stock trades 10.4% below its 5-year high. In this calculation you can really see that this stock seems to be undervalued as 5 year average ratio makes it a higher stock price than the actual 5 year high was.

The fair market value ratio for the Auto Manufacturer Sector, according to morningstar is currently at 0.83. If I divide the current price by it I will get a price of 44.43 USD. That means even from that side the sector seems to undervalued.

Earnings per share growth

In 2011 the EPS were 4.58 USD and EPS in 2016 were at 6.00 USD. This means EPS grew on average by 5.55%. I consider that growth as ok especially as the car sector is very cyclical.

Dividend History and Future

The history of GM ended in 2009 with its bankruptcy, and was again emerged in 2010 since 2014 it is paying dividends again. But at the same time there will be no increase for 2017. Nevertheless in 2014 the dividend was 1.20 USD and is currently at 1.52 USD. This means an average increase of 8.20% per year.

An important point for my buying decision is as well the dividend yield on cost, which is currently at 4.12% based on the new quarterly dividend of 0.38 USD. After tax my minimum yield, I want to reach within the next 3 years, should be at 2.8%. This means it should have a yield of 3.9% before tax.

As for 2017 there will be no dividend increase I am a assuming a lower dividend growth of 3.0% per year beginning with 2018 therefore the dividend in 2020 will be at 1.61 USD, which means a yield on costs of 4.39% before tax.

Conclusion

For me General Motors will not a dividend growth stock but the current yield looks very attractive right now. Considering the current valuation I think GM is one stocks which is really undervalued. A reason for it is that the car sector itself is not very attractive for investors another point is the history of GM with its bankruptcy in 2009. Nevertheless I consider buying some stocks of GM in the near future as the balance sheet still looks very reasonable and the yield looks also very attractive and it is already a part of my Wikifolio.

Btw there has to be a reason why it is in Warren Buffets portfolio :).

What do you think about GM? Do you ever consider it as a buy?

Disclosure: I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.

4 Comments

  1. I do own GM but have been called out of most my shares with $35 Jan 20 covered calls… I was going to buy again recently when it dipped close to $35. I am watching it!

  2. I really appreciate your work on valuation, I am trying to understand the same issue.
    I have tried to follow your method, but I cannot.
    Your table has 5 columns, A – F. I found B and C on the MorningStar site, but I cannot find columns D and E. You should give them better names. Where did you get those numbers?

    P/E 5,9 and 72,6
    P/B 28,4 and 39,7
    P/S 122,9 and 36,9
    P/C 10,5 and 51,6

    ?????

    Thanks
    Dan

    • Hi Dan,

      thanks for the comment. Well you can not find the figures anywhere, there calculated based on the current price and the multiplied with 5 year average ratio.
      e.g. currently EPS ratio is 6.2 that makes EPS of 5.9 multiplied with the 5 year average EPS ratio of 12.2 makes it a price of 72.2. Hope that helps…

  3. Thanks for your analysis. If GM continues to increase their dividend payments for two more years, then the stock will make the CCC list. I require a streak of 5 years of higher dividend payments before I consider a stock a dividend growth stock, which is also the definition used by David Fish to compile the CCC list. So, GM is not currently in my radar but I’d be interested in the stock a few years down the line…

Leave a Reply

Your email address will not be published.


*