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

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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 0.11x and 0.05x respectively.

Notice that GM’s current Price to Sales per share ratio is 0.01x, 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 $3.01, 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 the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company’s value, and currently GM is 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 1.82 and a historical low Cash Earnings per share ratio of 0.78, 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. Because GM is not currently paying a dividend we give them a neutral rating on the dividend portion of our analysis; however, be advised that because the company has a history of paying a dividend that means that the dividend has been discontinued. We are always cautious of a company that has discontinued paying a dividend as it generally suggests a financial weakness.