What Risk Factors Could Hurt GM’s Valuation Multiples in Q1 2019?


Mar. 21 2019, Published 11:05 a.m. ET


As of March 20, General Motors’ (GM) forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple was 8.5x, much lower than its direct peer Ford Motor Company’s (F) EV-to-EBITDA multiple of 12.8x. These multiples are calculated based on the companies’ estimated EBITDAs for the next 12 months.

At the same time, Fiat Chrysler Automobiles (FCAU) had the lowest EV-to-EBITDA multiple of 1.8x. FCAU’s higher leverage position than those of its peers could be one of the key reasons for its lower multiple. About six months ago, GM’s EV-to-EBITDA multiple was slightly lower at 8.0x.

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Comparing forward PE multiples

Based on their earnings forecasts for the next 12 months, GM’s and Ford’s forward PE multiples are 5.7x and 6.9x, respectively. In comparison, Fiat Chrysler and Toyota Motor (TM) have forward PE multiples of 4.4x and 7.2x, respectively.

Key risk factors

GM’s fourth-quarter results were primarily driven by stronger US demand for trucks and crossovers. Any sign of a negative trend in pickup truck and crossover sales could affect the company’s future earnings estimates and drive its forward valuation multiples lower.

The recent trend in GM’s quarterly earnings clearly showcases its high dependence on the North American auto market (IYK) (IVV), as its international results largely disappointed. Given that it has already exited the European market and its sales in China are declining, GM’s reliance on its home market has significantly increased.

Nonetheless, GM’s key focus areas, which include retail sales, pickup trucks, autonomous vehicles, and electric cars, could keep investors’ optimism alive going forward.

Read on to the next article, where we’ll explore what Wall Street analysts are recommending on GM stock.


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