10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

Is It the Right Time to Get Into General Motors?

May 21, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

The U.S. automobile industry has been doing well with an increase of 17% in August sales compared to the same period last year. Industry players are experiencing increased sales as a result of great demand for their products. According to Bloomberg, new car and truck deliveries may rise to 16.1 million units next year.

With the industry doing so well, all the players are expecting to grow. Each player has been putting its efforts to innovate and bring in new products to attract maximum customers. Among the prominent players that have been making the right moves for a bright future is General Motors (GM).

With a stock price appreciation of more than 55% over the last year, the car maker is planning a number of new products to offer to the market to keep its good run intact.

Actively Innovating

General Motors is planning to launch the Chevrolet Trax compact SUV in 140 countries. It also launched the 2014 Chevrolet Silverado 1500 in July and it has become the most popular vehicle in the U.S. This model provides greater fuel economy because of its EcoTec3 engine. Also, the recovering housing market has improved demand for pickup trucks since they are used to transport equipment for home building. This has driven sales higher as compared to last year.

In the pickup trucks segment, General Motors faces competition from Ford (F). Ford’s F-series trucks have been very popular in U.S with 367,000 units sold in the first six months of the year. In fact, Ford also plans to come up with the CNG variant of F-150 pickup trucks, which will be even cheaper for customers since CNG is cheaper compared to others.

However, General Motors has been marketing its new products well and plans to strengthen its marketing strategies in order to combat competition. It spent more than $300 million on Silverado’s marketing campaign and plans to invest more. This will help the car maker attract more customers.

Another new introduction expected from General Motors is the new 2014 Chevrolet Volt hybrid car for the U.S. market. The toughest competitor of this model is Toyota’s Prius-hybrid. In spite of being similar, Volt is more expensive than the Prius, which makes the Prius more popular in the U.S. However, to overcome this problem, General Motors has decided to cut Volt’s 2014 price by $5,000. This price cut will make the car more competitive against Toyota’s Prius.

Valuation

Looking at the PE ratio (on a trailing 12-months basis), General Motors has a higher multiple of 17.67 than its peers Ford and Toyota Motor (TM), which have multiples of 9.81 and 9.51, respectively. However, General Motors has the lowest forward PE ratio of 6.96, whereas Ford and Toyota stand at 8.26 and 8.65, respectively. This implies that General Motors is expected to grow more than its peers.

Also, General Motors’ PEG ratio, at 0.49, is lower than Ford (0.95) but higher than Toyota (0.27). Though General Motors is slightly expensive at this juncture, it is definitely worth the money considering the growth prospects of the company.

Conclusion

General Motors has been performing really well. Its efforts on the strategic front also look good. The growing demand for pickup trucks and hybrid cars might help the company boost its revenue further. General Motors’ bright future is also evident from its forward PE multiple, the lowest compared to others.

Moreover, the company is expected to grow much more than its industry peers. General Motors is expected to benefit largely from the growing automobile industry. Its presence in lucrative markets such as China and India adds to its strengths. I believe investors should definitely get into this car maker.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK