GE: Up 85% in the Past 3 Months, is General Electric Still a Buy?

Take a look at GE’s one-year chart, and you will find it nearly forms a perfectly shaped parabola. GE significantly declined at the start of the pandemic, enjoyed a brief spike in the early summer, plateaued, and has since climbed more than 85% in three months.

This conglomerate is drawing considerable attention from investors far and wide as its offerings are likely to sell quite well as the economy gradually returns to normal. GE’s products range from light bulbs to plane engines, wind turbines, power plants, and even financial services. The pressing question is whether GE’s leadership’s focus on renewable energy, aviation, and power paves the way for a bullish future or if the stock is currently overvalued.

Is GE Still Worth Consideration at $11 per share?

With a successful business history that spans nearly 130 years, GE’s products and services are used worldwide. However, GE has a forward P/E ratio of 270.75. This is an absurdly high forward P/E ratio, especially considering the fact that GE is not a high-flying tech superstar. However, GE has serious potential as the company has aligned its fate with industries that will prove increasingly important as time progresses.

GE’s coronavirus price slide was justified as the company is deeply invested in commercial aerospace; an industry hit particularly hard by the pandemic. Respected analysts far and wide anticipate GE will have a cash outflow near $1.5 billion this year alone. This figure will escalate to nearly $2.5 billion next year and a whopping $4 billion in 2022. This means GE’s valuation is a tough pill to swallow as of December 2020.

The silver lining is GE is boosting margins throughout the bulk of its businesses. If you are willing to be patient, investing in GE today could pay off in the years and decades ahead. GE has solid free cash flow in its healthcare business. The company’s renewable energy business could drive growth for years to come even though this segment had a margin loss of more than 4% in 2019.

GE is also a player in the power industry, a segment that is comparably low-growth. What might matter most is how quickly the commercial aerospace market can rebound, assuming the pandemic comes to an end at some point in the year ahead. It is concerning that GE has emphasized its exposure to the aviation industry as a component of its financial operations that operate under the name of GE Capital.

The Experts’ Take on GE

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When in doubt, ask the experts. To be more specific, the POWR Ratings are worth a close look. GE has an “A” grade in the Industry Rank and Trade Grade components. The stock has a “D” Peer Grade component and a “C” Buy & Hold Grade component. Out of 38 publicly traded companies in the Industrial – Manufacturing industry, GE is ranked 23rd.

Analyst opinions are mixed as to whether GE has a bright future. The average analyst price target for the stock is $11.38, indicating a potential upside of 2%. Out of the 14 analysts covering GE, nine recommend buying, five advise holding, and none recommend selling.

The Verdict

You have better places to park your money than GE in the months, years, and decades ahead. It is quite possible GE will trade higher through 2021; however, time is money. Better opportunities will arise as GE continues to develop its core businesses. Only those who are willing to wait years for a significant return should take a flyer on GE at this point.

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GE shares were trading at $11.03 per share on Wednesday morning, down $0.08 (-0.72%). Year-to-date, GE has declined -0.75%, versus a 16.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...