Today we're going to take a look at the well-established General Electric Company (NYSE:GE). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$8.46 at one point, and dropping to the lows of US$6.07. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether General Electric's current trading price of US$6.61 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at General Electric’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in General Electric?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 17.5x is currently trading slightly below its industry peers’ ratio of 19.91x, which means if you buy General Electric today, you’d be paying a decent price for it. And if you believe that General Electric should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like General Electric’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of General Electric look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. General Electric’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in GE’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at GE? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on GE, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for GE, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that General Electric has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.
If you are no longer interested in General Electric, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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