The Razor's Edge

2-Year Price History

A Word Of Caution

General Motors Corporation (GM) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

Therefore, (and as always), check additional sources and available information regarding GM before making an investment decision.

Ockham's Rating

GM Stock Evaluation

Because of a relatively quiet week from a price movement perspective, there has been little change in the valuation of GM recently. Furthermore, there has been no change to the earnings guidance given by the company's management in the last week. Those are two key factors in our fundamental analysis which are unchanged since our last report. In accordance with these static factors, we see no catalyst for a ratings change this week.

GM Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at GM through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.20x and 0.11x respectively.

Utilizing this range we can see that GM’s current Price to Sales per share ratio of 0.01x is significantly below its average levels historically. In fact, with a current price of $3.65, GM is a full 93% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for GM.

GM Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. GM is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for GM to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 3.64 and a 2.04 low over the same period.

Now that GM’s current price is $3.65 and its Price to Cash Earnings ratio is 0.23, we are very positive on its outlook from the cash earnings perspective. In fact, GM is now trading a full 92% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why GM has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

GM Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for GM to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for GM is $1.00 producing a current dividend yield of 27.40%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from GM against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from GM over previous years was 58.82% while the lowest dividend yield was 2.11%. Management at GM needs to get the current dividend yield above the historical median before we are comfortable from this point of view.