Will General Motors (GM) Stock Be Negatively Affected Today by Arizona Lawsuit?

NEW YORK (TheStreet) -- General Motors Co. (GM) is being sued by the State of Arizona for $3 billion, as the state is claiming the car maker defrauded its consumers in regards to the 2.6 million small cars that were recalled, after a decade long delay, due to a faulty ignition switch, the New York Times reports.

The complaint against General Motors accuses the company of intentionally misleading its customers through the use of advertising, website, and public statements, and alleges that some of the company's leaders were complicit in these actions, the Times added.

Arizona announced the filing of the suit on Wednesday, breaking away from a group of 48 state attorneys general that have been involved in a multistate investigation into General Motors, regarding its handling of the ignition switch issues, the Times noted.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

The complaint gives calculations into losses suffered by owners of these vehicles, and disputes the company's claim that some of the defects were only known to lower level engineers and not top level officials within the company, the Times said.

A General Motors spokesperson told the Times that the company "has not yet had a chance to read and assess the complaint."

Shares of General Motors are lower by 0.50% to $31.99 at the start of trading on Thursday.

Separately, 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 a number of strengths, 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, growth in earnings per share 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 has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 0.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • GENERAL MOTORS CO reported significant earnings per share improvement 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 ($2.62 versus $2.35).
  • GM's debt-to-equity ratio of 0.96 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.83 is weak.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Automobiles industry and the overall market on the basis of return on equity, GENERAL MOTORS CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for GENERAL MOTORS CO is rather low; currently it is at 16.59%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.74% trails that of the industry average.
  • You can view the full analysis from the report here: GM Ratings Report

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