Will General Motors Company (NYSE:GM) Continue Rallying Higher?
General Motors Company (NYSE:GM) stock is up more than 30% in the past year and is likely to keep rising over the short-term due to the company’s strong fundamentals. The company’s shareholders are likely to benefit significantly from GM's rising profitability given that the management has consistently increased dividend payouts in the past.
GM stock has rallied by over 30% in the past year.
The company has strong fundamentals and is likely to continue rallying.
The company is currently overvalued in relation to the overall market.
The company is well positioned to tap into the growing demand for vehicles in China as well as innovations in autonomous driving technology, and the production of electric vehicles. However, despite the growing demand for the above classes of vehicles, which the company does not control, it is important for investors to focus on aspects that are within management’s control.
GM investors’ are lucky to have a management team that is keen on creating value for its shareholders given that the company has returned billions to shareholders in the last five years. The company’s management has spent $16 billion on share buybacks and over $11 billion has been returned to shareholders in the form of dividends.
The company faces stiff competition in the North American market from its main competitors Ford Motor Company (NYSE:F) and Tesla Inc (NASDAQ:TSLA), but it has significant advantages over the two automakers. The company is already producing electric cars such as the Bolt, while Ford is a bit late to the EV market. Furthermore, the company is not facing the same production issues that Tesla is currently facing in ramping up the production of its Model 3.
It is evident that GM is a market leader on many fronts, which makes the company a major player in the North American market as well as in China, which is experiencing significant growth in the EV category. GM has a lower P/E ratio as compared to Ford and given that it has been raising its dividend payout at a CAGR of about 6% it is evident that the company is financially stable.
However, GM’s debt levels have increased significantly in the first nine months of 2017, and the management should dedicate more resources to servicing the company’s debt obligations. GM is also likely to face significant cyclical headwinds in 2018, but I believe that this has already been priced into its stock price.
The company is currently undervalued in relation to the overall market and given that its fundamentals are improving consistently, its shareholders are likely to benefit over the long-term.
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