(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
General Motors Co.'s (GM) stock continues to struggle, with shares of the automaker down by about 17% from their highs just in the middle of June. The stock hit investors hard yet again on July 25, when the company lowered earnings guidance for the full year. But worse, an analysis of the technical stock chart suggests shares may fall by another 8%. Should that happen, the stock could decline by more than 23% from its June highs.
The company reported better than expected second-quarter results that topped analysts’ estimates on both the top and bottom lines. But the company also slashed its full-year outlook, and analysts are now slashing their forecast as a result. (For more, see also: Trump Tariffs Take a Bite Out of GM 2018 Profit Forecast.)
The technical chart shows shares of GM breaking a critical level of technical support at $38.75. With the stock trading below support, it suggests the stock falls to the next level of support around $34.50, a drop of more than 8% from its current price around $37.65. Additionally, the stock fell below a multi-month uptrend, another bearish indication. (For more, see also: General Motors Stock Could Fail Multi-Year Breakout.)
The relative strength index (RSI) is also trending lower, and it suggests that momentum is coming out of the stock. The RSI may continue to decline as well, as it is yet to indicate the stock is oversold, falling below 30. Volume is also surging as the stock falls sharply, suggesting there are many sellers with strong convictions.
Before today's results, analysts were forecasting earnings to decline by over 3% to $6.40 per share in 2018 versus 2017. But now analyst’s forecasts are calling for 2018 earnings of $6.18 per share, a decline of over 6.5% versus last year. Additionally, analysts have also reduced their outlook for 2019 by $0.02 per share to $6.39, and 2020 estimates by roughly $0.07 to $6.11 per share.
GM EPS Estimates for Current Fiscal Year data by YCharts
The viewpoint for revenue is relatively unchanged but still less than encouraging when looking at the longer-term outlook. Revenue is forecast to decline from $143.9 billion in 2018 to $142.3 billion by the year 2020.
The technical chart suggests the significant declines in GM's stock are likely not finished, with more declines on the way. But that bearish technical chart appears to be a depiction of a weakening business outlook.
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.