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General Electric (GE). Buy or Sell - You be the judge!
In this article, we are going to analyze the stock price movement of General Electric Company (GE), a component of Dow Industrials Average, over the last five years in reference to its EPS (Earning per Share).
General Electric Company operates as a digital industrial company worldwide. It operates through Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation, Lighting, and Capital segments. The Power segment offers technologies, solutions, and services related to energy production, including gas and steam turbines, engines, generators, and high voltage equipment; and power generation services and digital solutions. The Renewable Energy segment provides wind turbine platforms, and hardware and software; offshore wind turbines; solutions, products, and services to hydropower industry; and blades for onshore and offshore wind turbines. The Oil & Gas segment offers oilfield services, oilfield equipment, turbomachinery and process solutions, and digital solutions. The Aviation segment provides jet engines and turboprops; maintenance, component repair, and overhaul services, as well as replacement parts; and additive machines, materials, and engineering services. The Healthcare segment offers diagnostic imaging and clinical systems; products, services, and manufacturing solutions for drug discovery, the biopharmaceutical industry, and cellular and gene therapy technologies; and medical technologies, software, analytics, cloud solutions, and implementation and services. The Transportation segment provides freight and passenger locomotives, and rail and support advisory services; parts, integrated software solutions, and data analytics; software-enabled solutions; mining equipment and services; and marine diesel and stationary power diesel engines and motors, as well as overhaul, repair and upgrade, and wreck repair services. The Lighting segment offers light emitting diode products; and energy efficiency and productivity solutions. The Capital segment provides industrial and energy financial services; and commercial aircraft leasing, financing, and consulting services. General Electric Company was founded in 1892 and is headquartered in Boston, Massachusetts.
Here is the chart of GE: stock price vs EPS since 2013. Earnings Per Share (EPS) is an indicator widely used to measure the performance a company. EPS is calculated by dividing the (total earning - dividends (applicable to preferred stocks)) by the total number of outstanding stocks. It is obvious that the GE stock’s price plummeted down from $31 to $13 in less than 24 months. GE disappointed its shareholders with a negative earning surprise (-40%) in October 2017. In addition, General Electric also cut the dividend yield by half to 3.61%. Possible setbacks for GE include, a slowing pace in the core business activity, increasing debt, and the regulatory charges. Furthermore, President Trump’s recent tariff on imported steel and aluminum is likely to influence a price increase.
Here is a quick summary of GE’s current financial statistics (taken from Yahoo Finance on 04/10/2018)
Market capitalization (mcap) indicates the total value of a company in the stock market. It is generally calculated by multiplying the shares outstanding by the current share price. GE falls under a large cap category. Price/earnings ratio (often shortened to the P/E ratio or the PER) is the ratio of a company's stock price to the company's earnings per share. Investors constantly look for good stocks that are undervalued with the help of P/E. In general, price to earnings ratio less than 20 is considered undervalued. GE's current PE ratio indicate that the company is undervalued at this time. Beta coefficient (β) measures the volatility of a stock with respect to the market. This also measures the risk a share carries with it in reference to the total share market financial system. A beta of less than 1 means that the stock is less volatile than the market and vice versa.
Price/Book ratio (P/B) is a ratio that is used to compare a specific stocks current market value to the actual book value. A lower P/B would mean that the stock is undervalued. Price/Sales ratio is a valuation ratio and is usually calculated by dividing company's total market capital to the total sales over a 12 months period. Stocks that has P/S less than 1.0, is usually considered to be a good investment. Liquidity Ratio also called as current ratio or quick ratio is calculated by dividing current assets by current liabilities. A ratio greater than one means that the current assests are greater than the current liabiities. GE's quick ratio is 1.2
From the price charts above, it is clear that GE is hovering around the support line of around $14 and is well below the 200 day and 100 day moving averages. Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder, measures the speed and change of price movements. The RSI has a range between 0 and 100. Traditionally, the stock is considered to be overbought when RSI is above 70 and oversold when it is below 30. RSI for GE as of April 10, 2018 is well below 30 in a weekly chart.
While GE's stock price has plummeted more than 50% since 2017, the current EPS trend shows that the GE's projected EPS is also operating at 50% of its usual capacity. Despite its challenges, a closer look at the technical and financial paramters may attract a value investor towards GE, with a hope that the downward potential is minimal for this iconic stock. As per Zacks Research (wwww.zacks.com), GE is expected to report EPS $.12 on April 20, 2018. Should there a positive earning surprise, General Electric Company's stock price may see an immediate upward movement.
Financial information cited in this article are taken from Yahoo Finance (http://www.yahoo.com/finance); EPS data is taken from Zacks Research (http://www.zacks.com). GE 2017 fourth quarter performance can be obtained here
Articled by Sraavya Pradeep for TheoryofStocks, LLC