The Razor's Edge

2-Year Price History

Ockham's Rating

GM Stock Evaluation

We are reiterating our rating of Undervalued on GM at this time. As described in the Recommendation Summary, we have not seen any additional guidance or change in expectations to GM’s earnings, but we have seen a relatively significant increase in its share price of 71.24%. This increase in price is significant and should be noted as we look further into the fundamental picture of GM below.

GM Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, GM the high and low end of the Price to Sales per share ratios are 0.19x and 0.09x respectively.

Notice that GM's current Price to Sales per share ratio is 0.02x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $5.24, GM is 89% below where we would expect to see it. This will beneficially factor into our final analysis of GM as it is not often that this stock sinks to these levels.

GM Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of GM, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for GM, the current level of Cash Earnings compared to its historical levels helps identify where GM is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 3.12 and a historical low Cash Earnings per share ratio of 1.33, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for GM? From the Ockham perspective, we are looking specifically at GM to see if the market is recognizing the huge disparity between GM's past stock price to Cash Earnings ratio to today's levels. At a difference of 86% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at GM. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

GM Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In GM’s case, the estimated annual dividend is $1.00 resulting in a current dividend yield of 19.08%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from GM against the historic high and low levels over the past 10 years. The highest dividend yield from GM over this period was 58.82% while the lowest dividend yield was 2.11% With that range in mind, GM’s current dividend yield is a full 37.37% below its median dividend yield historically. This is a negative from our perspective.