During the global financial crisis of 2009, countless businesses suffered from the failing economy, and General Electric (NYSE:GE) was definitely no exception. Since then, companies have been working to recover and return to pre-recession profitability. It has been a slow process and some companies have been quicker to recover than others. General Electric is one of those companies. While its current stock price of $24.95 is still not at its pre-recession peak of $41.77, the future is looking good for the company, and it appears to be well on its way to meeting and surpassing its previous heights.
In fact, aside from a couple of brief slumps here and there, General Electric’s stock has risen by 107.4% from its lowest point during the crisis of 2009. Based on this alone, we can see that the company is on a steady road to recovery. But its financial records tell a more complete story about this recovery.
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- GE 15-Year Financial Data
- The intrinsic value of GE
- Peter Lynch Chart of GE
Increasing Profits and Decreasing Liabilities
After a slight slump toward the end of 2013, profit margins are once again on the rise, nearing the company’s historical 10-year high. If this momentum continues, General Electric should be able to speed up its recovery even more in the coming years.
While profit margins are not rising as quickly as investors would like, GE has been strengthening its business in other areas. Last year it cut its costs by $1.6 billion. The somewhat slower than desired profits are also, in part, a result of General Electric’s increasing investments in industry and manufacturing which will pay off in the long run.
Investments include a $1.06 billion deal to purchase several businesses from Thermo Fisher, adding to General Electric’s already very profitable health care division. The three businesses it will acquire once the deal closes generated around $250 million in revenues last year and come as part of General Electric’s larger plan to expand its health care services, especially in the manufacture of new medicines and vaccines.
Last quarter, the company ended with an order backlog of $244 billion, the highest it has been in years and up $15 billion from the previous quarter. This is a great sign in terms of the company’s future earnings (which are already seeing healthy growth year over year). A full seven of General Electric’s eight industrial segments reported increasing profits in the fourth quarter of last year for a total increase of 12% in overall industrial profits.
In addition to cutting costs and increasing investments, the company has managed to concurrently decrease its debt. Its debt to equity ratio has been decreasing steadily over the past five years. This tells investors that the growth we are seeing is coming from sustainable sources rather than being financed by growing debt obligations.
From this, we can see that even though profit margins could hypothetically be growing faster than they currently are, General Electric is making sure to prioritize its debt obligations and future growth potential by reinforcing the company’s foundations, increasing its efficiency, and expanding into profitable markets.
The declining debt to equity discussed above is an important indicator of a company’s ability to sustain its growth and continue to meet its debt obligations. Had it been increasing, investors would have to be cautious in reading too much into any growth the company is experiencing.
Another sign of whether or not a company’s growth is sustainable is the number of shares outstanding. If the company is offering more and more equity, it could be a sign of internal panic and struggle to cover its costs. General Electric’s number of shares outstanding has been decreasing at a faster and faster pace after an initial spike in 2009 (of 10.68 billion) showing that the company’s growth is real and sustainable well into the future.
General Electric is a great option for investors looking for a strong addition to their portfolio. It appears to have a solid plan for recovery and future growth. Even at its current momentum, investors would be able to double their investment in five years, and the company shows strong signs of increasing its growth rate through streamlining operating efficiency and investing in future development. Aside from that, the stock also offers attractive dividend yields of 3.53% and the company currently boasts payouts of 37.30%.