General Motors (GM) continues to impress its investors and prove its doubters wrong. Unfortunately for its share price, it's made little difference over the years.
On Friday the stock caught an 8% bump to $37.50 after the company provided its outlook for 2019 and raised full-year expectations for 2018. Management now expects to earn between $6.50 and $7.00 a share in 2019, a big beat vs. consensus estimates, which currently call for earnings of just $5.88 per share. Management also provided guidance for automotive free cash flow between $4.5 billion and $6 billion in 2019.
Assuming the automaker hits its earnings range, it should represent year-over-year growth from 2018, depending on how well GM does in the fourth quarter. Worth pointing out is that management said it expects to exceed the earnings and automotive free-cash flow guidance for 2018 that it provided after reporting third-quarter results in October, which called for adjusted earnings per share of $5.80 to $6.20.
While the stock is moving higher Friday as a result, investors have to be growing tired of GM stock's tendency to pop higher and sell off shortly after. What is it going to take for the stock to embark on a sustainable rally?
GM Stock Stuck in 2nd Gear
The problem for bulls is that GM has all the makings for a higher stock price, yet it never comes in a sustainable fashion. Take, for instance, the most basic investment principles of the dividend yield and P/E ratio.
Shares of GM pay out a 4% dividend yield and trade at roughly 5.5 times the midpoint of the 2019 earnings forecast management just provided. That's dirt cheap with a great dividend, but that's been the case for General Motors -- and to a lesser extent, Ford (F) -- for years now.
More recently, the company smashed third-quarter earnings expectations in October, reporting 6.5% year-over-year sales growth while its GAAP earnings of $1.75 per share came in 46 cents a share (35%) ahead of expectations. The company also boosted its full-year outlook at the time. Less than six weeks later in November, GM announced it would embark on a massive restructuring. The move -- while criticized by multiple parties -- would result in a multi-billion savings, which also sent the stock higher.
Last but not least, let's not forget about Cruise, a subsidiary majority-owned by General Motors. In August 2016, the company bought Cruise for $1 billion. Two years later and following investments from SoftBank (SFTBY) and Honda (HMC) , Cruise was most recently valued at $14.6 billion.
Still, none of this was enough to keep GM stock elevated. In December and earlier this month, General Motors stock price was below that of before it reported third-quarter earnings in October.
To say that CEO Mary Barra hasn't done a good enough job for shareholders seems borderline ridiculous. At this point it's unlikely that GM will ever be valued with a market multiple or anything close to it. Even doubling its valuation to 11 times earnings -- sending shares to almost $70 apiece -- would still leave it with a notably lower P/E ratio than the S&P 500, with a comparable dividend yield to boot.
But short of Cruise setting the world on fire with its autonomous transportation and edging out Alphabet's (GOOGL) (GOOG) Waymo, that's unlikely to happen. Investors now have some assurance that rather than a year of flailing, GM is set for growth in 2019. Unfortunately, that won't guarantee them stock gains.
That said, those who continue to nibble in the low- to mid-$30s can rest a bit more comfortably after this latest update. In fact, Real Money's Stephen "Sarge" Guilfoyle has outlined more than once how to utilize option sales (cash-secured put sales and covered calls) to help manage a long stock position in GM.