Is General Motors Enticing At Current Prices?

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 further sells cars and trucks to dealers for consumer retail sales as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments.

Recently, Fitch Ratings, a global rating agency that analyzes value through credit opinions, research, and data, announced that it had upgraded General Motors to a positive outlook from stable, illuminating the Detroit automaker’s continued turnaround. General Motors’s Chevrolet division is raising its sales target to 5 million vehicles for 2013 — a goal that, if realized, would mark a record for the U.S. automaker, but one that the company is confident it can reach thanks to growth in its developing markets.

T = Technicals on the Stock Chart Are Mixed

General Motors stock has been moving higher in the last few years. The stock is pulling back from highs for the year so it may need time before its next move. 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 key averages which signal neutral price action in the near-term.

GM

(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

29.38%

76%

75%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish 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’s 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-16.67%

-3.33%

6.49%

-13.59%

Revenue Growth (Y-O-Y)

3.88%

-2.32%

3.47%

2.33%

Earnings Reaction

-1.10%

3.01%

0.03%

0.70%

General Motors has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been pleased with General Motors’s 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), Tesla Motor (NASDAQ:TSLA), and sector?

General Motors

Ford Motor

Toyota Motor

Tesla Motor

Sector

Year-to-Date Return

21.64%

30.12%

34.64%

390.10%

29.56%

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 company recently saw an upgrade from Fitch that has boosted the stock. The stock is now trading slightly below highs for the year. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has pleased investors in the company. Relative to its peers and sector, General Motors has been a weak year-to-date performer. WAIT AND SEE what General Motors does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.