Stock in General Motors appears to be undervalued. On Monday, CO Mary Barra said that the automaker has a higher value than it is currently fetching on the stock market. She believes that GM is lower than expected due to investor concern about peak auto sales.
Last year, all United States automakers sold 17.47 million vehicles. Barra believes that General Motors could break even if they sell at least 10 million vehicles in the United States. Morgan Stanley believes that General Motors and Ford Motors would have to sell at least 13 million units to break even.
GM Shares Are Lower Than Expected
Currently, GM shares are down 10 percent for the year to date. While the first quarter earnings growth was strong, investors still remain concerned about the automotive industry. Worries about the current expansion and the potential for another recession have fueled the caution around American automakers. Despite this, General Motors remains profitable in the United States market. They continue to focus on a strong balance sheet and cost controls to prevent another recession from damaging the company.
Investing in the Future of General Motors
After enjoying record profits last year, GM’s shares have lingered around the $30 mark. After an initial public offering in 2010, share prices fell from the IPO’s $33 price to reach just $29.06 today.
In terms of ongoing costs, GM has positioned itself to have a workforce where 25 percent of the employees are short-term workers. If there is another recession or decreased demand, labor costs can be slashed instantly. While the company’s monthly market share dropped below 16 percent in May, GM has worked to develop alternative methods for combating poor investor confidence.
In response to the threats from Uber and Google’s self-driving car, GM has invested in Lyft and Cruise Automation. The Cruise deal was signed off in May, and the autonomous software has already been tested in the Chevrolet Bolt electric car. In addition, the company will reduce costs by $5.5 billion by the start of 2018.
Growth in GM’s Lending Arm
An additional source of growth is found in GM’s financial lending business. The lending portion of the company encompasses about 30 percent of the car company’s retail sales. Over the next few years, this amount is expected to grow to 55 percent. Meanwhile, luxury sales are expected to rise. Globally, the luxury business accounts for 30 percent of profits and 10 percent of sales. While Americans are buying fewer luxury vehicles, China continues to buy additional luxury cars like the Cadillac line. Eight new models of the Cadillac will be developed by 202 as GM sinks $12 billion into courting the Chinese luxury market.
GM stock appears to be undervalued based on its sales record, profitability and future potential. Keep in mind that investors trade at their own risk. With the right information and tools, investors can make informed decisions about their next investment vehicle.