(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of X, X and X company.)
General Motors Co. (GM) stock has had a terrible 2018 with shares down by almost 30% from its June highs. Technical analysis suggests that the stock may fall even lower by another 5%. Should that happen the stock would be more than 33% off its 2018 highs and at its lowest levels since November of 2016.
The bearish sentiment in the chart is a direct result of what analysts expect to be a bad third quarter as auto sales fall. But it isn't just the quarter that is expected to be bad because analysts see earnings falling through 2020.
The charts show that the stock has fallen below a critical level of technical support at $32.15. Now the stock's next level of support doesn't come until $30. Additionally, the relative strength index continues to trend lower, and that suggests that momentum is continuing to leave the stock. (For more, see also: GM Stock Seen Falling 9% as Outlook Worsens.)
Weak Quarter Ahead
For the third quarter, analysts estimate that earnings will fall by 5% to $1.26 per share, while revenue is forecast to rise by 14% to $34.8 billion. But those estimates have been declining since the middle of July. (For more, see also: GM's Stock Seen Skidding Into a Bear Market.)
The outlook for the balance of the year looks even worse with earnings forecast to fall by almost 11% to $5.91 per share. Meanwhile, revenue is expected to rise by 8.5% to nearly $145 billion. But again those estimates have been falling since the middle of the summer.
Still worse is the outlook for 2019 and 2020. For example, analysts estimate that in 2019 revenue will grow by less than 1% while earnings will fall by over 1%.
With no signs of growth on the horizon for General Motors, it becomes clear why the stock has performed so poorly and is likely to fall even further. Until there are clear signs that rising global trade tensions are easing and the auto market is on the road to recovery, this stock is likely to continue to struggle.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.