General Motors: A Strong Performance with a Low Valuation

General Motors (GM -0.52%) has recently published its fourth-quarter earnings, showcasing impressive results and promising guidance for 2025. Despite this strong performance, the stock experienced a significant drop of nearly 10% following the announcement. Currently, the automaker is trading at an unusually low valuation of just over four times its expected future earnings.

While the decline may seem surprising given the solid earnings, there are underlying concerns investors should consider. Nevertheless, General Motors remains a highly profitable entity that is effectively pursuing its strategic goals. Here’s a detailed look at why this stock could be a compelling opportunity at the present price level.

Impressive Fourth Quarter Results

Examining General Motors' fourth-quarter performance and its future outlook may leave one perplexed as to why the stock price dropped after the announcement.

In terms of key financial metrics, GM surpassed market expectations in both revenue and profit. The company's revenue climbed 11% year-over-year during the fourth quarter, and when factoring out some one-off charges from its China operations and restructuring of its Cruise division, earnings per share surged by 55%.

GM not only excelled in sales figures, but it also did so with significantly lower incentive spending than its competitors. The company maintained its top position in U.S. auto sales, leading in various categories such as full-size SUVs and pickups.

In the realm of electric vehicles (EVs), GM's growth trajectory continues to impress, demonstrating the second-highest EV sales in the latter half of 2024, trailing only Tesla. Over the last year, GM's share of the U.S. EV market rose from 6.5% to 12.5%, and the company anticipates selling 300,000 EV units in 2025, marking a 59% increase over 2024. Overall, GM's market share in the U.S. has been steadily rising, reaching its highest level since 2018 by the end of Q4.

Moreover, GM is actively reducing the number of outstanding shares through stock buybacks, achieving its target of under one billion shares by the close of 2024. Additionally, the company is enhancing its financial position by paying off $750 million in company debt in early December and aims to eliminate $1.75 billion in maturing automotive debt this year.

Looking ahead, GM has set robust goals for 2025, projecting earnings per share between $11 and $12. This implies that with the current share price, the stock is valued at merely 4.3 times its forecasted earnings. Furthermore, GM anticipates adjusted earnings before interest and taxes to be around $14.7 billion at the midpoint, exceeding analyst expectations by $700 million.

Reasons Behind the Stock Decline

The notable drop in GM's stock doesn’t appear to stem directly from its recent earnings report. Instead, it seems to be influenced by regulatory uncertainties regarding tariffs and EV incentives, along with concerns about potential slowing in EV sales. An analyst from Bernstein highlighted that the company's guidance "leaves no room for errors." GM's Chief Financial Officer also noted that the guidance does not account for potential regulatory shifts, which could make the outlook seem overly optimistic if tariffs are implemented.

Despite these challenges, it is crucial to recognize that GM is effectively executing its growth strategy and generating substantial free cash flow. Even in the face of these regulatory threats, General Motors stands out as a remarkably undervalued stock following its excellent earnings report.

Matt Frankel has investments in General Motors. The Motley Fool has positions in and recommends Tesla, as well as General Motors.

GeneralMotors, Earnings, Valuation