General Motors (NYSE:GM, Financial) is fully embracing the future with its focus on electrification and autonomous technology making it an intriguing stock. The company has consistently shown good growth momentum, with a mind-boggling 51% upswing over the past half-decade. More recently, this momentum is further supported by a superb 64.45% rise from its 52-week low, with the stock now at $53.7.
Also, its good financial position and focus on innovation have ensured that it is competitive in the automotive industry. In the long run, GM is focused on operating its battery cell technologies to propel its Electric Vehicle (EV) production and Cruise for self-driving technology. Moreover, the company's valuation is much superior to that of its competitors. Such a position could enable GM to effectively capitalize on the increasing EV market.
Given the excellent performance in major investment parameters of GM such as valuation, growth, profitability, momentum, and earnings-per-share (EPS) revisions, it is logical to project a double-digit growth over the next few years. In the short term, it can attain a price target of $60-$65 based on sustained strong Q4 2024 results and more EV sale expansion. However, if GM continues to execute its growth plans it may be possible for the company to reach $75-$80 price in the long run as it consolidates its leadership in electrification and autonomous technology.
Company overview and strategic advancements
General Motors, a Detroit based company is one of the largest automotive manufacturing companies. It has a workforce of about 165,000 employees in six continents. The company also contributed $39.2 billion to the GDP in 2022, and this amount is almost a quarter of the total contribution made by all car manufacturers in the United States, proving how the company is also driving economic impact while building EVs.GM's vehicle lineup easily bridges the traditional and the transformative. From sound internal combustion engine (ICE (NYSE:ICE)) models to the current EVs, the company is set for the future. The key of its EV strategy had been the Ultium battery platform which formed the basis of interesting EV models of GM. While GM has decided to no longer use the name Ultium, they are still using the same technology. Not only that, but GM's EV revolution has caused its EV sales to skyrocket 60% year-over-year (YOY) in Q3 2024.
However, GM's vision is much broader than that of simply making exceptional vehicles. The company has set an ambitious goal to remove tailpipe emissions from new light-duty vehicles by 2035. With this in mind, GM is making bold moves today such as the EVgo partnership to create 400 fast-charging network across the nation. These efforts are all evidence that GM is taking sustainability seriously and is working to make the automotive manufacturing process cleaner and greener.
Solid financial performance and cash flow strength
GM's Q3 2024 results show GM's endeavors towards growth and steadiness. With the automotive division accounting for $44.7 billion and GM Financial for $4 billion, respectively, the automotive giant reported a hefty $48.8 billion in revenues, up 10.5% YOY. This performance indicates that GM is capable of handling its traditional automotive industry while trying to establish a market for EVs at the same time. The net income was $3.05 billion, which is nearly equal to last year's $3.06 billion, despite having higher operating expenses.But, the real game-changer is GM's cash flow. During the first nine months of 2024, the company generated an operating cash flow amounting to about $16 billion which indicates operating profitability and strict operating cost management. Currently, the company has more than adequate funds in the form of cash and equivalents, totaling $23.7 billion, to invest in key technologies like its battery platforms and self-driving cars that I have already mentioned.
Additionally, the company has opted for share buybacks which have pulled down the total outstanding shares by a whopping 19% YOY. Altogether, by owning such powerful financials, GM continues the path to further consolidation of its position as one of the leaders of the automotive industry market, which has a high growth rate at the moment.
Attractive valuation and growth potential
Moreover, GM's favorable valuation further supports its investment thesis. Although the stock has risen significantly in the past year, it is relatively cheap and should be able to go higher if it delivers on its growth plans. It can be seen that current price-to-earning (P/E) ratio is 5.75 times, that is 71% lower than the sector median of 19.95 times. This is backed up by an impressive forward PEG of 0.53 times.Additionally, its forward EV/EBITDA of 6.36 times and price-to-sales of 0.33 times also indicate that the market has not properly valued its leadership in electrification and autonomous driving yet. To the low-cost investors, GM has one of the most attractive stocks in terms of cheap stock prices and innovative growth prospects.
Source: Author generated based on historical data
Now, let's compare GM to its peers in the sector, Tesla (NASDAQ:TSLA, Financial) and BYD (BYDDF, Financial). Tesla's forward P/E of 170.35 times and EV/EBITDA of 70.26 times reflect its premium growth pricing, while BYD, though a bit more affordable than TSLA, is still slightly more expensive than GM. For example, the forward P/E of BYD is 15.38 times and EV/EBIDTA stands at 7.68 times, which is higher than that of GM. Furthermore, Tesla has a P/S multiple of 11.47 times and BYD 0.94 times, so there is a huge difference in the perception of the market about these companies.
Risks to GM's long-term growth
There are still key risks to GM's performance, despite the company having an overall positive growth trend. First, it shows that the company has a significant net debt of $102 billion, which can constrain its financial flexibility as it ramps up EV and autonomy investment. This could put pressure on free cash flow and affirmatively cut overall shareholder value in the short run.Second, the company's positions in important international markets such as China have been declining. Its Q3 2024 EV sales in China were 426,000, an alarming 21% decline from 541,000 in Q3 2023 because the company struggles with rising competition from domestic automobile manufacturers in the largest auto market. This relatively small operational space overseas has somewhat decreased the company's international strategic presence and diversification.
Finally, as for the growth opportunity, the Cruise division has it, but it is still unprofitable. Cruise has continued to work on the advancement of its fleet. That said, it records little revenue and reports massive losses including $435 million in the latest quarter. Cruise will lose no more than $2 billion in 2025 according to CEO Mary Barra, however, the future of the division remains certain.
Final word
GM's overall outlook shows that the company offers a good opportunity for value and growth investors.The company has come a long way in its transformation through electrification, the application of autonomous technology, and the enhancement of operational efficiency for growth and stability. The company has a great lineup of EVs driven by the Ultium platform and strong financials with positive cash flow which shows its direction to the future.
GM has made sustainability, innovation, and harnessing the newest technologies the center of its business model, resulting in a tremendous competitive advantage. Although challenges remain, if GM continues to improve its leading fundamentals, as well as intensively address change, it will be a tough competitor for others in the industry.
This content was originally published on Gurufocus.com
