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Where GM’s Valuation Stands before Its Q1 Event Tomorrow

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GM’s forward EV-to-EBITDA

As of April 26, General Motors’ (GM) forward EV-to-EBITDA multiple was 8.6x. In the last three months, GM’s EV-to-EBITDA has slightly risen, but it was still much lower than Ford’s (F) 13.0x. We calculated these multiples based on the respective auto companies’ EBITDA forecasts for the next 12 months.

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GM’s forward PE ratio

Based on the next 12 months’ earnings estimates, GM’s forward PE ratio was at 6.1x, also lower than Ford’s 7.9x. About three months ago, GM’s and Ford’s forward PE multiples were higher at 5.6x and 6.4x, respectively.

Currently, Fiat Chrysler Automobiles (FCAU) had the lowest forward PE multiple among mainstream automakers at 4.7x. FCAU’s higher risk due to a high leverage position could be one reason for its lower valuation multiples.

In contrast, luxury carmaker Ferrari’s (RACE) valuation multiples typically are much higher than legacy US automakers’. This major difference in valuation is partly because RACE sells only luxury vehicles, which tend to yield much higher profit margins than mass-market passenger cars. Ferrari’s forward PE multiple was at 32.7x as of April 26.

What could be factored in?

In the first quarter, General Motors’ total US sales fell 7.0% year-over-year, which was steeper than a 1.6% drop in Ford’s first quarter US sales. During the quarter, GM’s key brand, Chevrolet’s, home market sales tanked 7.8% year-over-year while its luxury car brand, Cadillac’s, sales fell 2.0%. This major weakness in the Chevrolet and Cadillac brands’ first-quarter US sales could be one reason why analysts expect GM’s profit margins to contract in the first quarter, which could already be factored into its stock price by now.

If General Motors manages to report stronger-than-expected first-quarter profitability, it could boost its future earnings estimates and drive its valuation multiples up.

Also, investors may remain focused on GM’s first-quarter performance in China—the world’s largest auto market. The company’s weak performance in China, along with no expectation for near-term recovery, could hurt investor sentiment.

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