Will GM (SM) Stock be Affected By China Factory Car Components Explosion?

NEW YORK (TheStreet) -- General Motors  (GM) said it asked its main Chinese supplier to find an alternative source of components after an explosion at a factory a day earlier that killed at least 69 people, Reuters reports.

According to Zhongrong's website, the factory made wheels that are supplied to GM and many other car makers, Reuters said.

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Distancing itself from Zhongrong, GM said it bought components from a company called "Dicastal" - which Zhongrong works with, Reuters noted.

Shares of General Motors are slightly higher in pre-market trade.

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 and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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

  • GM's revenue growth trails the industry average of 19.5%. Since the same quarter one year prior, revenues slightly increased by 1.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.95, 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 0.81 is somewhat weak and could be cause for future problems.
  • GENERAL MOTORS CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over 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 ($2.71 versus $2.35).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Automobiles industry. The net income has significantly decreased by 80.3% when compared to the same quarter one year ago, falling from $1,414.00 million to $278.00 million.
  • The share price of GENERAL MOTORS CO has not done very well: it is down 5.72% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
  • You can view the full analysis from the report here: GM Ratings Report

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