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How GM’s Valuation Multiples Look before Its 1Q18 Earnings

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Apr. 25 2018, Updated 7:30 a.m. ET

GM’s EV-to-EBITDA multiple

On April 18, 2018, General Motors’ (GM) forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple was 7.1x. GM’s EV-to-EBITDA was lower than that of Ford’s (F) forward EV-to-EBITDA multiple, which was hovering at 13.2x. These multiples are calculated considering the respective auto companies’ EBITDA forecasts for the next 12 months.

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PE multiple comparisons

Based on the earnings estimates for the next 12 months, GM’s forward PE (price-to-earnings) ratio was 6.1x, lower than Ford’s forward PE ratio of 7.3x.

Currently, Fiat Chrysler Automobiles (FCAU) had the lowest EV-to-EBITDA multiple of 2.5x among mainstream automakers. FCAU’s relatively higher risk due to high leverage position could be one of the reasons for its lower valuation multiples.

In contrast, luxury carmaker Ferrari’s (RACE) valuation multiples typically are much higher than those of legacy US automakers. This is partly because RACE sells only luxury vehicles, which tend to yield much higher profit margins than mass-market passenger cars. Ferrari’s forward EV-to-EBITDA multiple was 17.5x while its forward PE multiple was 31.4x—significantly higher than mainstream automakers.

GM’s valuation multiples can be compared with companies like Fiat Chrysler and Ford—but not with Ferrari due to differences in their business models.

What could be factored in?

With a drop in the contribution of retail sales in its total US sales, production downtime, and seasonal factors, GM is expected to report weakness in its 1Q18 earnings. These factors are expected to be already factored into the company’s stock price and valuation multiples. 

Currently, General Motors is focusing on expanding its pickup truck product portfolio, which could be positive for its profitability in the medium to long term. Any signs of weakness in US truck and utility vehicle sales (XLY) could hurt GM’s valuation multiples going forward.

Read on to the final part of this series to learn about some key technical levels for General Motors stock before its 1Q18 earnings event.

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