On April 9 General Motors Company (NYSE:GM) was trading at a price level of $27.5. This is not a matter of technical analysis, merely a curiosity, but GM has been trading at a level significantly higher than its 200 DMA (Day Moving Average). Since April 2012 it has appreciated almost 60 percentage points. And during this period it was able to cross the DMA barrier, as seen in the chart below.
Observing such a trend, a very important question arises:
Is this upward movement sustainable?
To understand the movement this stock has shown, I analyzed General Motors Company (NYSE:GM) operationally and fundamentally. I have come up with four reasons why this movement is sustainable, and I will discuss what factors should be considered in understanding why this trend will hold.
Increase in Sales in the US Region
General Motors Company sold 245,950 vehicles in the United States in March, up 6 percent compared with a year ago. Retail sales increased 4 percent, fleet sales were up 12 percent and the fleet mix was 27 percent of total sales.
I think the new strategy of GM focusing on fewer models has fructified. The following data from the company website shows an increase in sales of various models.
|Q1 Highlights||Total Sales||YOY Change||Retail Sales||YOY Change|
With the bright outlook on the auto industry in the next four to five years, I expect the company can maintain the growth character it has shown in the recent future.
Competitors of GM like Ford Motor Company (NYSE:F) have also shown strong growth during the same period. Ford remained in the news for its car Focus, which was the best selling car in the world last year. It also outperformed market under SUV category with Ford Escape.
Performance in China and Europe
For GM China, sales rose by around eight percent during the first two months of this year. During March they increased by 13%. The consolidated number for Q113 stands at 816,573. This put the US carmaker ahead of Toyota Motor Corporation (ADR) (NYSE:TM) in terms of number of cars sold. Loss of interest in the brand among Chinese consumers is turning out to be a boon for its competitors. While Toyota US saw a sales slip of 0.5%, it is more concentrated on emerging economies like Indonesia, which it is planning to make its export hub. Ford Motor Company (NYSE:F) also increased its sales in china by 65% y-o-y. Ford and its joint ventures sold about 186,600 units in January-March, 54% morethan in the same period a year earlier.
Europe is a big concern for all automakers. With peaking unemployment and the crisis in Cyprus, this is clearly not a season for a lot of automobile sales. With the most dismal performance in this decade, Europe is a region where almost every automaker performs badly, thereby giving us little material to compare them.
Fundamentals and Earnings Analysis
GM has seen an increase in its bottom line in recent years. Net profit increased 11 percent and one percent in years 2011 and 2012 respectively. This increase was also reflected in the stock price, which appreciated about 30 percent in fiscal year 2012.
With a P/E of 9.4, the stock seems to reflect a healthy price level and is not inflated, considering Toyota Motor Corporation (ADR) (NYSE:TM) has a level of 17.92. Ford Motor Company (NYSE:F) has P/E value around 9.7 and P/B around 3.6.
Retrenchment Move to Maintain Profitability in Struggling Markets
The company has retrenched its staff strength in some of the emerging economies to keep its operating cost in a healthy range. It is cutting approximately 600 jobs at a Brazilian plant due to low productivity.
At its Australian unit GM is laying off about 500 employees, which makes for 12% of its workforce. This move came as a response to the strengthening Australian dollar and very fierce competition in this market.
Points of Concern
With the increase in the tension between South Korea and North Korea, General Motors Company (NYSE:GM) might have to lose some of its market from the South Korean region.
With the layoffs that the company is considering, it might face opposition from the respective governments or may lose subsidies or grants like tax-breaks given to them.
These may be some of the crucial factors to consider that might affect the short term price movement of this stock.
Considering the industry’s bright outlook and the fact that GM has a lot of good things going for it, I am bullish on the stock. For probable time of entry, I would consider any short dip. However, investors should be careful about the concerns I have expressed here.
Shas Dey has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors Company (NYSE:GM). The Motley Fool owns shares of Ford.