We've been asking ourselves recently if the market has placed a fair valuation on General Electric Company. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
General Electric Company operates as a high-tech industrial company in Europe, China, Asia, the Americas, the Middle East, and Africa. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, General Electric Company has a trailing 12 month P/E ratio of 12.3 and a P/B ratio of 3.39.
General Electric Company's PEG ratio is 1.68, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Exceptional EPS Growth Obtained Primarily Through Share Buybacks:
| 2020-02-24 | 2021-02-12 | 2022-02-11 | 2023-02-10 | |
|---|---|---|---|---|
| Revenue (MM) | $90,221 | $75,834 | $74,196 | $76,556 |
| Gross Margins | 28.1% | 23.7% | 27.4% | 27.5% |
| Operating Margins | 9.2% | 0.4% | 5.8% | 7.8% |
| Net Margins | -5.52% | 7.52% | -8.79% | 0.29% |
| Net Income (MM) | -$4,978 | $5,705 | -$6,520 | $224 |
| Net Interest Expense (MM) | -$2,927 | -$2,068 | -$1,876 | -$1,607 |
| Depreciation & Amort. (MM) | -$3,541 | -$3,464 | -$3,009 | -$3,544 |
| Earnings Per Share | -$3.89 | $3.73 | -$4.8 | $9.23 |
| EPS Growth | n/a | 195.89% | -228.69% | 292.29% |
| Diluted Shares (MM) | 1,397 | 1,403 | 1,408 | 1,088 |
| Free Cash Flow (MM) | $10,574 | $4,942 | $4,415 | $7,078 |
| Capital Expenditures (MM) | -$1,837 | -$1,376 | -$1,083 | -$1,162 |
| Net Current Assets (MM) | -$132,221 | -$134,285 | -$90,913 | -$83,973 |
| Current Ratio | 1.34 | 1.55 | 1.28 | 1.16 |
| Long Term Debt (MM) | $67,241 | $70,189 | $30,824 | $28,593 |
| Net Debt / EBITDA | 58.71 | 3.27 | -14.39 | 3.08 |
General Electric Company's financial statements include several red flags such as declining revenues and decreasing reinvestment in the business, slimmer gross margins than its peers, and exceptional EPS growth obtained primarily through share buybacks. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company benefits from decent operating margins with a stable trend and consistent free cash flow. Furthermore, General Electric Company has just enough current assets to cover current liabilities.
