Where Will General Motors Go Post-Earnings?

With shares of General Motors (NYSE:GM) trading around $35, is GM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Motors designs, manufactures, and markets cars, crossovers, trucks, and automobile parts worldwide. The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Holden, and Vauxhall brand names, as well as under the Alpheon, Jiefang, Baojun, and Wuling brand names. It sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers in daily rental car companies, commercial fleet customers, leasing companies, and governments.

General Motors on Thursday announced second-quarter net income attributable to common stockholders of $0.2 billion, or 11 cents per diluted share. Strong core operating performance during the quarter was offset by a pre-tax net loss from special items of $1.3 billion, or 47 cents per diluted share, and costs of $1.2 billion pre-tax primarily for recall-related repairs, or 44 cents per diluted share. “Our underlying business performance in the first half of the year was strong as we grew our revenue on improved pricing and solid new vehicle launches,” said GM Chief Executive Mary Barra. “We remain focused on keeping our customers at the center of all we do, and executing our plan to operate profitably in every region of the world.”

T = Technicals on the Stock Chart Are Mixed

General Motors stock has struggled to make positive progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, General Motors is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of General Motors options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Motors options

23.81%

33%

30%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of Thursday, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on General Motors stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for General Motors look like and more importantly, how did the markets like these numbers?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

-85.33%

-89.66%

5.56%

-49.44%

Revenue Growth (Y-O-Y)

1.28%

1.44%

3.05%

3.72%

Earnings Reaction

-4.46%*

-0.63%

-0.02%

3.24%

*As of this writing

General Motors has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with General Motors recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has General Motors stock done relative to its peers – Ford Motor (NYSE:F), Toyota Motor (NYSE:TM), and Tesla Motors (NASDAQ:TSLA) – and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

-8.47%

15.23%

-2.04%

47.89%

2.57%

General Motors has been a poor relative performer, year-to-date.

Conclusion

General Motors continues to change its business as it looks to entice companies and consumers with its new and improved vehicles. The stock has struggled to make positive progress and is currently pulling back. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has left investors pleased. Relative to its peers and sector, General Motors has been a poor year-to-date performer. WAIT AND SEE what General Motors does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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