General Motors trades at $50.97 and has moved in lockstep with the market. Its shares have returned 9.5% over the last six months while the S&P 500 has gained 4.7%.
Is now the time to buy General Motors, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.We're swiping left on General Motors for now. Here are three reasons why we avoid GM and a stock we'd rather own.
Why Is General Motors Not Exciting?
Founded in 1908 by William C. Durant, General Motors (NYSE:GM) offers a range of vehicles and automobiles through brands such as Chevrolet, Buick, GMC, and Cadillac.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, General Motors grew its sales at a tepid 4.8% compounded annual growth rate. This fell short of our benchmark for the industrials sector. 
2. Low Gross Margin Reveals Weak Structural Profitability
For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.
General Motors has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.
Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants such as Rivian, Lucid, and Nikola have negative gross margins. As you can see below, these dynamics culminated in an average 12.8% gross margin for General Motors over the last five years.
3. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect General Motors’s revenue to drop by 3.2%, a decrease from its 11.4% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
Final Judgment
General Motors isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 5.1× forward price-to-earnings (or $50.97 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward MercadoLibre, the Amazon and PayPal of Latin America.
Stocks We Like More Than General Motors
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like Comfort Systems (+783% five-year return). Find your next big winner with StockStory today for free.
