General Electric

(GE) - Get Report

may need to shrink its financial unit if it wants to recapture the flagging confidence of investors, who have cut the conglomerate's share price in half over the past year.

GE appears to be interested in addressing concerns about its GE Capital financial unit, but details thus far have been scarce. Nick Heymann, an analyst with Sterne Agee, believes the stock market has been punishing GE over GE Capital worries, assigning the stock a price-to-earnings ratio that is more typical for a financial company than an industrial one.

Indeed, an analysis of

Bloomberg

data by

TheStreet.com

, suggests Heymann has a point.

I compared GE to 25 other large financial and industrial companies, using Wednesday's closing price.

Three years ago, nearly all of the 25 large financial and industrial companies I looked at traded at a much higher multiple than they are trading now, based on Wednesday's closing prices to analyst-estimated 2010 earnings. (I tried trailing 12 month earnings, or 2009 estimates, but the last year has been so crazy the multiples are all over the place). GE is no exception: It fell to 12.55 from 19.91.

What remains constant, however, is that industrial companies tend to trade at higher multiples than financial ones. Both three years ago and using 2010 estimates, the companies with the five highest multiples were all industrials. Three,

Berkshire Hathaway

,

Emerson Electric

(EMR) - Get Report

and

Danaher

(DHR) - Get Report

made the top five during both time periods.

The bottom five changed a bit, though both then and now they were mostly financials.

Deutsche Bank

(DB) - Get Report

,

Hartford Financial

(HIG) - Get Report

and

Met Life

(MET) - Get Report

were constants in the cellar.

Certainly Heymann is right in at least two respects: Industrials generally command higher multiples, and GE's multiple has slipped both absolutely and relative to the group. Three years ago, it had the sixth-highest multiple, but vs. 2010 estimates, it fell to 12th. That is still a bit better than industrials

United Technologies

,

Honeywell

(HON) - Get Report

and

Siemens

(SI) - Get Report

, but it is lower than financials

Wells Fargo

(WFC) - Get Report

and

Credit Suisse

(CS) - Get Report

.

What remains to be seen is whether by shrinking its financial business, GE can climb back up the ladder. Is the market penalizing GE for being a financial company, or for being massive and difficult to understand? Or is that one and the same thing?

What also remains to be seen is how committed GE is to shrinking its financial business. An analyst asked GE CEO Jeff Immelt about the issue during a May 19 conference call, and Immelt said the company may be "a little more specific," when it reports second quarter earnings in July.

However, Immelt added, "it's going to be a couple years. And some of that just rolls off naturally. And personally, I believe that at some point, capital markets are going to open up and we're going to be able to do some bulk dispositions at that time."

Sounds good. In the meantime, GE investors, don't look for a whole lot of upside.