Beware of General Electric Company (NYSE:GE)
Up a close look at long-term earnings growth trends for GE suggest that the company has been growing by a slower and slower rate for many years and it is currently early growing earnings at all. On a fundamental basis, that is concerning, but our analysis identifies additional concerns.
Serious growth concerns exist for General Electric Company (NYSE:GE). The stock trades with a PE multiple of 22, which is well above the multiple of the S&P 500, currently at about 17. That alone makes General Electric look rich, but when you compare that multiple to the growth rate of General Electric it looks even worse.
Our earnings growth analysis uses trailing 12 month data, calculated on a quarterly basis, to formulate growth trends. The first chart below is a quarterly observation of earnings growth where we compare the trailing 12 month results from this quarter to last quarter, and then plot the result to develop a quarterly growth trend for earnings. In addition, the second chart compares the same trailing 12 month data to the same period from the year before to calculate the yearly earnings growth for General Electric.
In both instances, growth concerns are apparent. In the quarterly growth chart, growth has actually turned negative, and in the yearly growth chart growth is only about 1.4%. When we compare a growth rate as low as that to a PE multiple as high as the one levied on General Electric's stock at this time, concerns skyrocket. General Electric will need to grow much faster to warrant its current multiple.
On a technical basis, General Electric has also tested the longer-term resistance level we have identified for the stock in our real time trading report for GE. So long as the stock remains under resistance we would expect the stock to fall to test longer term support as that is identified in our report.
Given the valuation risks and the test of longer-term resistance that has recently occurred our current outlook for GE is negative, and it will remain that way unless resistance breaks higher or a complete decline to longer term support takes place as our current report suggests.