Why General Motors (GM) Is Down Today

NEW YORK (TheStreet) -- General Motors  (GM) fell on Thursday as its woes continue with regard to its vehicle recall tied to faulty ignition switches.

GM revealed late Wednesday that it knew about faulty ignition switches as early as 2001, three years before the date it previously reported, but has yet to determine the entire problem. The car maker is now at the center of three different investigations, including a criminal investigation, according to The Wall Street Journal. Transportation Secretary Anthony Foxx also told reporters in Washington on Wednesday that he had a "high level of confidence" in the National Highway Traffic Safety Administration, "but we'll continue watching as facts unfold and see where we are," according to Reuters.

Separately, Delphi Automotive  (DLPH), which makes the component at the center of the problem, said that it only takes a few dollars to make and minutes to install, which has led some to wonder why the problem persisted for so long. Delphi said earlier this week it plans to spend between $2 and $5 to create a replacement ignition switch that could be "swapped out" in mere minutes by mechanics at GM dealerships, according to The Wall Street Journal.

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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 some important positives, 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 3.7%. 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 29.70%.
  • 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 34.50% 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 ($3.80 versus $2.35).
  • You can view the full analysis from the report here: GM Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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