GM stock closed down 2.5% today on news that Canada will sell its 4.6% stake in GM to Goldman Sachs.  Did Canada make the right call?

Canada is unloading its stake in GM ahead of its earnings, which are to be reported later this month.  Does this mean that Canada expects pessimistic earnings results for the company?  We could assume many things about Canada’s perspective on the stock.  We won’t go there, though.

Instead, we’re going to examine and analyze GM stock from a fundamental perspective.  There are 3 Style Scores.  These analyze growth, value, and momentum using fundamental ratios and statistics.  We’ll break down 2 of the Style Scores and examine momentum separately.  GM has a Zacks Rank #1 (Strong Buy).  It has even managed to get straight A’s across the board for each style score.  This is an especially rare feat to accomplish in the Zacks universe of stocks.

Growth

GM has a projected EPS growth estimate of 52.43% for this year.  It also has a current ratio (assets/liabilities) of 1.27.  The company has a debt to capital ratio of 46.93%, while its return on equity is a solid 15.83%.  These growth stats suggest that GM is financially capable of operating efficiently, with nice returns to match.

Value

I'm sure most people who own shares of GM are aware that the Detroit based auto manufacturer was bailed out during the financial crisis.  Perhaps this is why investors have been careful not to inflate the stock, as it has a PE of 7.9.  Also,  the company has a PEG of 0.47.  This brings to light the fact that the growth the stock experiences more than justifies the price it is trading for right now. 

A price to sales ratio below 3 is favorable.  It helps that GM's is only 0.38.  You really are getting a lot of bang for your buck, especially with a price/book of 1.64.  Having a debt to equity of 0.88 also bodes well for the stock.

Momentum

Frankly, the Style Score for momentum doesn't tell GM's story very well, although it scores an A in that category. GM's stock price has been suffering since the middle of March.  Thus, we will talk about momentum here in terms of earnings potential going into the earnings report. 

In the last 60 days, there have been 8 positive earnings estimate revisions by analysts for this quarter.  In that same time frame, there have only been two negative revisions by analysts.  The EPS for this quarter a year ago was $0.29.  Now, our consensus estimate for this quarter calls for EPS of $0.97.  GM beat our consensus estimate last quarter by 40% and with a report from GM coming on 4/23 there is plenty of reason to think another beat is ahead for the company.
 
Bottom Line

It is possible that Canada was a bit too brash in exiting their GM position. GM appears well-positioned for a beat this earnings season, while their value and growth metrics suggest that now may be the time to buy GM rather than to sell shares of the automaker.

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