GM shares have further upside after another high-volume gapper

General Motors Company NYSE:GM is suddenly finding another gear.

After dropping below $30 in November 2023 (for the first time since the pandemic), shares of the old-school automaker have rebounded more than 40%. From a graphical perspective, the increase is noteworthy for several reasons:

1. The current three-month winning streak (the first since 2021) has coincided with above-average trading volume. Monthly volume topped 400 million shares in November, December and January, suggesting that renewed investor interest in GM is real.
2. Last week, the 50-day moving average (MA) line crossed the 200-day moving average line. Often referred to as a “golden cross,” the event suggests that GM is in the early stages of a long-term bull market. While a profit-taking pullback is already underway, the uptrend is likely to resume if the stock can find support at the 50-day moving average.
3. About 10% of GM’s float is held short. Short covering could accelerate the uptrend in the coming months.
4. GM has posted notable gaps on two occasions in the past two months. When a stock rises to a new level with unusually high buying activity, it often means the market has mispriced it and further upward recalibration is expected.

In late November, GM posted a 9% gap after resetting its 2023 guidance and announcing a $10 billion buyback program and a 33% dividend increase. Daily volume was five times higher than normal and the highest in years. In hindsight, this was a bullish sign of more developments to come.

The stock’s latest high-volume gapper occurred last week. GM jumped 8% on Jan. 30, when the company released fourth-quarter financials that beat consensus. With Wall Street predicting a year-over-year sales decline, GM reported flat revenue of $42.98 billion. Earnings per share (EPS) fell sharply but not as much as feared. Considering the period was marked by a labor strike and weak electric vehicle (EV) sales, the relationship was solid.

What is GM’s profit outlook for 2024?

GM’s forecast of “a year of strong performance” in 2024 is also responsible for the market’s recent bullish sentiment. Management expects full-year adjusted earnings of $8.50 to $9.50. At the midpoint, that implies growth of 21% over last year’s performance. The expected profit increase is especially impressive given that analysts expect little to no EPS growth for Tesla this year.

GM expects to benefit from the absence of a UAW strike, reduced fixed costs and fewer EV inventory adjustments. It is also expected to gain market share as a result of increased penetration of electric vehicles. As Tesla can attest, prices in the electric vehicle industry are trending downward, but GM believes it can offset this headwind with improved sales volumes. Its 2024 electric vehicle launches include the Chevy Silverado EV RST pickup and the $340,000 Cadillac CELESTIQ luxury sedan.

GM’s growth outlook, however, is marked with an asterisk. Almost all of the expected increase in EPS is due to share buybacks. In November 2023, the company initiated an accelerated share repurchase program that is expected to boost 2024 EPS by $1.45. While this implies that profit growth will be relatively flat, it is still positive. The Board’s plan to pick up depressed GM shares this year should provide a floor for the stock price and lead to higher earnings per share.

Is GM a good value stock?

In addition to the current buyback program, GM offers value to shareholders in the form of a growing dividend. During the fourth quarter report, the Board declared a first quarter 2024 dividend of $0.12 per share, which represents a 35% increase over the previous payment. While GM’s forward dividend yield (1.3%) still lags woefully behind Ford’s (5.1%), the increase signals an improving financial outlook.

In terms of valuation, GM remains largely undervalued, sitting at around 5 times trailing 12-month earnings. Over the past five years, the stock has traded at an average price-to-earnings (P/E) ratio of 8x, and the average auto sector P/E is 13x. Ford and Tesla’s P/E ratios are 8x and 42x, respectively.

If GM’s financial picture improves as expected, its P/E multiple is likely to gravitate back towards its historical average. Since nearly 50% upside separates the current P/E from the average P/E, GM could be a path worth taking for long-term value investors.

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