Why General Motors (GM) Is Down Today

NEW YORK (TheStreet) -- General Motors  (GM) was falling 1.5% to $36.27 at 10:57 a.m. on Thursday after The National Highway Traffic Safety Administration announce late Wednesday that it had started an investigation into "the timeliness of General Motors' recall of faulty ignition switches to determine whether GM properly followed the legal processes and requirements for reporting recalls," according to USA Today.

Federal law mandates that an automaker inform the NHTSA if it has a safety defect in its vehicles within five business days. GM spokesman Alan Adler said the company would "fully cooperate with the probe."

The GM recall initially covered the 2005-2007 Chevrolet Cobalt and 2007 Pontiac G5 on Feb. 13. On Tuesday, the recall grew to include the 2003-2007 Saturn Ion, 2006-2007 Chevrolet HHR and 2006-2007 Pontiac Solstice. It now encompasses 1.37 million vehicles in the U.S. and 253,519 in Canada and Mexico. There have been 33 crashes and 13 deaths connected to the recall. Eight of the deaths occurred in the Cobalt or Pontiac G5, while five happened in crashes involving the Ion.

GM said vehicle owners would start to receive notices in March and dealers would start replacing ignition switches in April. For now, the NHTSA tells drivers to "use only the ignition key with nothing else on the key ring" when driving and to get the repairs done as soon as possible.

Must Read: GM Sales Seen Falling for Third Straight Month: Is Weather to Blame?

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TheStreet Ratings team rates GENERAL MOTORS CO as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL MOTORS CO (GM) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 3.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 291.54% to $3,058.00 million when compared to the same quarter last year. In addition, GENERAL MOTORS CO has also vastly surpassed the industry average cash flow growth rate of 31.33%.
  • The debt-to-equity ratio is somewhat low, currently at 0.85, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 34.72% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • GENERAL MOTORS CO has improved earnings per share by 5.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENERAL MOTORS CO reported lower earnings of $2.35 versus $2.93 in the prior year. This year, the market expects an improvement in earnings ($3.84 versus $2.35).
  • You can view the full analysis from the report here: GM Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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