Founded in 1993, The Motley Fool is a financial company committed to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investment solutions, free Fool. com recommendations, and market analysis. top-notch podcasts and the Motley Fool Foundation, a non-profit organization.
Founded in 1993, The Motley Fool is a financial company committed to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investment solutions, free Fool. com recommendations, and market analysis. top-notch podcasts and the Motley Fool Foundation, a non-profit organization.
General Motors (GM 1. 34%) recently reported fourth-quarter 2023 financial results that rebounded. The company generated $43 billion in profit in the three-month period and posted percentage-adjusted earnings of $1. 24. Both figures crushed Wall Street’s estimates.
In the past three months, GM shares have soared 43%. This gain far exceeds the performance of the S
Is it time to buy this more sensible car inventory and hold on to it for the long haul?
GM’s fourth-quarter earnings necessarily held steady compared to the same period last year. However, the net source of earnings increased to 5. 4%. And for the full year, the company’s $172 billion sales were up 9. 6% from 2022. Management also provided optimistic forecasts that pleased Wall Street analysts. Management expects the net source of earnings to increase to 4% in 2024.
It’s worth noting that GM sold 943,000 units in the fourth quarter, up from 967,000 units a year earlier. Continued macroeconomic headwinds, particularly regarding the affordability of new cars due to emerging interest rates, could have a negative effect on volumes. And because of the state of the industry, the watchdog believes there will be value pressures in 2024.
As it turns out, the market is ignoring GM’s electric vehicle (EV) division. “The speed of expansion of electric cars has slowed, which has created some uncertainty,” CEO Mary Barra said on the fourth-quarter 2023 earnings call. We see trends among industry peers, adding Tesla.
However, GM still plans to expand its production functions so that the company can produce 1 million sets of electric cars by 2025, and this segment will then record an operating margin in the mid-segment. Electric cars accounted for less than 3% of the company’s sales. volume last year, so it will be a long time before it becomes a monetary engine.
GM generated $11. 7 billion in adjusted loose money in the auto business last year. Management used this providence to repurchase $11. 1 billion worth of shares, with the goal of continuing this capital allocation policy in the future.
I think expectations for GM have been so low that even the most recent quarterly effects, which were nothing to write home about, can drive inventory higher. Inventories still trade at a price-to-earnings (P/E) ratio of just 5. 5. That’s significant to rival Ford, which sells at a P/E of 11. 2.
This valuation is ridiculously cheap, so it makes sense for the controller to aggressively buy back shares. But before they jump into adding inventory to their portfolio, investors still have reason to be a little cautious.
First of all, the festival in the automotive industry is intense, with domestic and foreign competition to defend. In addition, EV startups are looking to capture market share. This gives consumers many features when it comes to choosing where to spend. your money.
This means GM’s operating environment will continue to be challenging. In terms of market share alone, ongoing capital expenditures will be high. And the mature nature of the industry translates into minimal customer expansion and low profit margins.
If those adverse characteristics weren’t enough to deter you, consider the cyclical nature of GM’s business. External factors such as supply chains, interest rates, and fuel costs can have a profound effect on the good fortune of the business. And they’re all out of your control.
Over the past 10 years, GM stock has returned 41. 9% (including dividends). During the same period, the
Neil Patel and his team have no position in any of the aforementioned stocks. The Motley Fool recommends General Motors and recommends the following options: $25 long calls in January 2025 at General Motors. The Motley Fool has a disclosure policy.
Market knowledge driven through Xignite and Polygon. io.