The Simplest Graph Shows Exactly Why GM Is a Big Buy -- but There's 1 Huge Drawback
General Motors has broken free of historically low P/E multiples, underscoring that Wall Street sees it as a top auto stock. Here's how.
Overview
Detroit automakers such as General Motors (NYSE: GM), Ford Motor Company (NYSE: F), and Stellantis (NYSE: STLA) (if you still count the latter) have long been plagued by low valuations. While Wall Street is slowly changing its perception of these automakers as investments, thanks to a more intriguing and lucrative future centered on driverless vehicle technology and increasing software monetization, automakers' valuations seldom rise above a modest 10 times price-to-earnings ratio.
Let's cover what holds valuations down and, with one simple graph, show how GM has finally broken free of this confinement.
Details
In the past, investors shunned automakers as long-term investments due to many negative factors. Those include the view that automakers were highly cyclical, leaving them exposed to boom-and-bust economic volatility; ballooning legacy costs such as pension and healthcare obligations; capital-intensive operations that left them with thin margins; and the "dinosaur" narrative, in which management was slow to adapt and sometimes arrogant.
Source
Originally published at www.fool.com.