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


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.

Article continues below advertisement

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.


More From Market Realist

  • A "now hiring" sign outside a Popeyes restaurant, one sign that employers are having trouble finding employees willing to work for current wages.
    Why Employers Are Struggling To Fill Jobs Despite High Unemployment
  • Beyond Meat patties in a grocery cart
    Buying the Dip on Beyond Meat (BYND) Stock Is a Risky Move
  • People looking at data on a laptop
    Is Driven Brands (DRVN) a Good Stock to Buy? A Look at the Year Ahead
  • A Moscow Mule drink made with Reed's
    Is Reed's (REED) a Good Stock to Buy? A Look at the Year Ahead
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.