Stock Market: GM's blowout numbers
General Motors' June Sales Defy Logic As Its Recall Count Piles Higher
General Motors ( NYSE: GM ) just stunned the world, yet again, with another massive recall. General Motors' most recent recall was to the tune of 7.6 million vehicles in the United States alone. If you add that into the automaker's massive running total through the first half of 2014 alone, all 54 individual recalls cover more than 25.6 million vehicles in the U.S. and nearly 29 million globally.
With that massive recall total in mind, the consumers have spoken: They don't mind. The endless recall saga appears to have had little, if any, impact on General Motors' sales, and that was further proven this morning when GM released its June sales report.
By the numbers
General Motors' sales in June increased 1% to 267,461 vehicles, compared to last year. That was far better than Edmunds.com's prediction that GM's sales would decline 8.5% in June, compared to last year.
The stock had a nice move up today (Jul 1). Here's a 5 day chart:
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Very strange that GM is doing so well even in the face of all those recalls . But the recalls involve a replacement to one small inexpensive part . I have to wonder what the appeal of GM is . Is it price ? Is it nationalism [made in the USA ] ?
Ooops. I mentioned the negatives, but forgot the positives.
1. The first one is a fairly amazing statistic. The average age on American cars on the road is about 11 years! That's really high. And what does it mean? Well, Americans won't be able to put off much longer--they'll have to replace most of them fairly soon. Which means a big increase in domestic car sales. (This is great for other car companies as well). That alone is a major factor that bodes well for big increases in future sales.
2. The price of a stock is not a measure of whether or not its expensive. Rather, you have to take into account its earnings. (If a company isn't earning money-- or worse yet, losing it, even if the stock is $2/share its expensive). This ratio (between the price of the stock and its earnings) is called a "P/E ratio". While there are many factors, traditionally a decent company's stock would be "fairly valued" when its P/E (price to earnings) is about 17. (Some would say 15). That's a real #.
Then there's the "forward P/E". This is not real-- rather its an estimate.
Looking at GM stock (here ) you can see its P/E is now about 20, so current earnings not that great. Stock is not too cheap. However, (scroll down) its "forward P/E" is about 7.98 because the denominator (estimated earnings) are really big!. This is an amazingly low P/E. Assuming its a fairly accurate estimate, the projection is for a really big growth in GE earnings going forward.
3. Now, another estimate. The price to earnings growth. Its called the PEG ratio. 1 or slightly less is really good. The PEG ratio for GE is 0.54. That's really amazing!
4. The third world is starting to develop more and more of a middle class. They will switch from riding donkeys, horses or motor scooters to cars-- eventually. I believe GM is doing very well in Latin America-- I think China too, a huge market). ???
5. I also look at major holders. I saw Warren Buffet owns it-- he's fairly smart abut money
The stock reported earnings today and handily bet estimates, which its why its up today. I think its got more upside.