Is General Electric's Stock Overvalued Or Undervalued?

General Electric Company GE shares have traded mostly in-line with the S&P 500 in 2021, generating a year-to-date total return of 24.6%.

GE has been through some turbulent times in the past decade and is still down roughly 50% overall in the past five years. At this point, investors may be wondering if there’s value in the GE turnaround story.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is currently at about 28.7, nearly double its long-term average of 15.9.

GE’s PE is currently 187.50, more than six times the S&P 500 average as a whole. GE's PE ratio is also up 85.5% over the past 10 years, suggesting the stock is currently priced at the high end of its historical valuation range.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. GE’s forward earnings multiple of 26.5 is also more reasonable, but it’s still significantly higher than the S&P 500 as a whole, making GE's stock look overvalued.

GE’s forward PE ratio is also more than double its industrial sector peers, which are currently averaging a 21.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 0.9; GE’s PEG is 0.27, suggesting GE is significantly undervalued after accounting for its growth.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.12, well above its long-term average of 1.62. GE’s PS ratio is 1.52, nearly four times the S&P 500 average as a whole.

Finally, Wall Street analysts do see some value in GE stock over the next 12 months. The average analyst price target among the 15 analysts covering GE is $127, suggesting about 22% upside from current levels.

The Verdict: At its current price, GE stock appears to be fairly valued based on a sampling of common fundamental valuation metrics.

Photo: Momoneymoproblemz, via Wikimedia Commons