General Motors: Is GM Still A Buy After Rallying 41% Year-to-Date?
In recent years, Tesla (TSLA) has dominated its automotive peers, with regard to total returns. During the trailing twelve months, TSLA shares are up nearly 394%. During this same period of time, shares of more traditional automakers have struggled to keep up. During the past year, Toyota (TM) shares are up only 25.81%. Volkswagen AG (VLKAG) shares are up 118.40%. Ford (F) shares are up 141.07%. Shares of Daimler Autogroup (DDAIF) are up 162.21. And, General Motors (GM) shares are up 168.25%.
As you can see, all of these companies are up well off of their COVID-19 recession lows; however, as great as the 12-month performance has been for these automakers, none of their results can stack up to the nearly 400% returns produced by Tesla. However, during 2021, the tides have largely turned. Year-to-date, Tesla shares are down 5.97%. However, during this same period of time, shares of General Motors are up 41.02%. The S&P 500 is only up 12% year-to-date and GM’s strong outperformance has made this stock one of the most followed stocks in the market, as tracked by the Nobias algorithm.
Graham Griffin, a 4-star Nobias analyst who writes for Gurufocus, recently highlighted GM’s strong rally, pointing out that the stock fell to lows of $16.80 back in March of 2020 during the worst of the COVID-19 sell-off; however, by October, he says, “Share prices were approaching pre-pandemic levels and the announcement for GM's new Hummer EV supertruck thrust the company back into the spotlight.” He notes that, “The Hummer models are set to lead GM's $27 billion shift to electric vehicles heading toward 2025.”
Chris Katj, a 4-star Nobias analyst who writes for Benzinga, recently published an article that further touching upon General Motor’s EV push, saying that the company has plans to produce 30 electric vehicles by 2025 and noting that shares recently rose on news that the company was launching its Ultimum Charge 360 platform. Katj said, “The new platform will integrate charging networks, on-vehicle mobile apps and other products.” As a part of that $27 billion EV plan, Katj says that “The company’s goal is to have electric vehicles at all price points for work, adventure, performance and family use.” To power these vehicles, GM is partnering with seven different charging focused companies with a goal of constructing over 60,000 charging stations for its customers. Katj says, “”General Motors has committed over $27 billion to electric vehicle and autonomous vehicle efforts through 2025. The company’s goal is to have electric vehicles at all price points for work, adventure, performance and family use.”
This EV push by GM has helped to change the sentiment surrounding the stock in the minds of analysts and investors alike. And, due to the much lower valuation attached to GM shares, this traditional auto company has been thrust into the bullish spotlight. Even after its recent sell-off, Tesla shares are trading with a blended price-to-earnings ratio of 222x. Granted, TSLA is expected to grow its EPS at a 101% clip in 2021, meaning that the company’s forward price-to-earnings is lower, at 149x. However, this triple digit P/E ratio is still significantly higher than the 11.7x blended price-to-earnings multiple and the 11.1x forward price-to-earnings multiple attached to GM shares right now.
GM is the clear winner, in terms of a value proposition here, which is the direction that the market has headed in 2021, with speculatively valued, high growth names selling off as traders pile into more conservatively valued names.
General Motors posted its first quarter earnings on May 5th and beat analyst estimates on the bottom-line, posting non-GAAP earnings-per-share of $2.25, which was $1.20 ahead of analyst estimates. However, even with this big bottom-line beat, the company missed expectations on the top-line, posting $32.47 billion in revenue, which was down 0.7% on a year-over-year basis.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
GM’s management remained confident, with CEO Mary Barra beginning the Q1 conference call saying, “Our start to this year was very strong with a record Q1 performance that was driven largely by robust product demand in the US, as well as an outstanding quarter for GM Financial. We remain confident that we will achieve our full year guidance. We are on a path to transform our company on the timeline we have shared with you and we are demonstrating our ability to accelerate our plan.”
During the Q1 report, GM updated full-year guidance, calling for 2021 EPS to come in somewhere within the $4.50-$5.25 range. This figure was slightly below analyst estimates for the year. At the $4.88 midpoint, the company’s full-year earnings-per-share growth would be essentially flat. However, the real growth for GM appears to be in 2022 (where analysts are calling for 20%+ EPS growth right now) and beyond, when the EV investments begin to pay off.
Right now, the 4 and 5-star analysts that Nobias tracks are divided on GM’s share price outlook. 6 of the blue chip analysts have recently offered bullish opinions whereas 5 have offered bearish. In short, it appears that after its big rally thus far throughout 2021, GM has become a bit of a battleground stock. Management will have to execute on its EV plans for this rally to continue. This is a fierce competition and only time will tell if the company is able to carve out significant EV market share relative to its peers.
Disclosure: Nicholas Ward has no positions in any equity mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.