In a world where debt is burdening governments and individuals, and threatening a global double dip recession, when a company announces a 7% hike in sales from a year earlier, an investor has to sit up and take notice. Especially when the products it sells are big ticket items.
General Motors (GM) shares are currently trading around $21.25 and its last 12-month earnings per share of $4.57 places its shares on a trailing price to earnings ratio of 4.65. This compares with the sector average of 6.91. It’s a similar story when looking at the forward price to earnings ratios: GM’s is 5.46, Ford’s (F) is 6.73, and Toyota Motors’ (TM) is 10.60.
GM’s gross margin of 12.18% lags competitor Ford at 14.83% though is marginally better than Toyota Motor Group’s 11.31%. A continued pick up in sales by the GM brands could push this margin higher, especially if such a pick up could be accompanied by modest price increases.
GM’s equity to debt ratio at 25.62 is small for the sector (F stands at over 1500, and TM is 109). The company has also recently announced that it has reduced its healthcare liabilities by $3 billion, as part of a continuing process of strengthening its balance sheet further.
GM’s announcement of an increase of 7% in sales in November from a year earlier followed an increase of 2% in October from the comparable period last year, and 20% in September. It also shed light on American drivers starting to turn to more fuel-efficient cars, a fact that GM has taken on board and is placing its faith I with the investment of $260 million in a factory in Ohio.To continue reading, click here.