General Electric Company (NYSE:GE) is a multibillion-dollar conglomerate that deals in an extremely diverse range of products globally, and is one of the largest companies in the U.S. with reported revenue of over 147 billion dollars in 2012. The company started off in the electricity sector in 1889, and now has a massive portfolio with deep roots in the power and technology sectors, media, capital financing, and consumer and industrial appliances.
Before we start analyzing GE from an investors' point of view, let us get one fact out of the way at the beginning: when it comes to paying dividends, the company is consistent. It has paid a dividend for each quarter over the last 100 years. This information, along with the revenue in 2012 should be enough to get an investor interested. So let us begin with the analysis without further adieu.
GE pretty much defines the term "diverse portfolio." The company runs NBC, makes home appliances, creates turbines and jet plane engines, and has operations in financing. GE has operations in major industries and sectors such as energy, electricity, technology infrastructure, transportation, finance, health and home, and television.
The company has global outreach, and has overseas operations in Europe, Russia, India, and China. The company has facilities all over the U.S., and has over 300,000 employees worldwide.
What Does It Mean?
If a company has a diverse portfolio, investors view it as a safe investment. Having a diverse portfolio means stability in the times of financial crises; if one industry suffers for some reason and one division has to bear losses, the profits earned from other divisions operating in other industries can make up for it. Diversification is key to financial stability. However, the global financial crises of 2008 put a dent in that theory.
Before the global financial crisis, GE's stock price was over 40 dollars a share. However, the diverse portfolio and global operations could not save it from a major slump, as negative financial effects encompassed all major industries and the stock value plummeted. The company has recovered slowly, steadily and gradually since then, and the current stock value is very stable at just over 23 dollars.
Currently, it is targeting the 27 dollar mark, and its low target price estimates are at 23 dollars flat.
If you compare these numbers with the ones before the global financial crises, they seem low, but if you look at the price trends, it is obvious that GE has performed well consistently. The diverse portfolio is its major strength, and the company ranks highly in this regard.
GE's Liquidity Ratios
GE's quick and current ratios are 2.2 and 2.3 respectively. Given the size and resources of the company, one would expect such strong numbers; however, the ratios did not look too strong in 2008 and 2009. In the past three years, the company's liquidity ratios have improved.
The liquidity ratios are a measure of how quickly a company can get rid of its liabilities by using its assets and cash. Technically, a ratio greater than 1 means the company can overcome its liabilities and is a safe investment. However, an increase in liabilities along with a decrease in assets and revenue can change that overnight. With liquidity ratios greater than 2, GE is in a strong position and investors do not have to worry about the company's financial stability.
The current P/E ratio of GE is 14.01, the EPS (earnings per share) is 0.41, and PEG ratio is 1.44. The data we are using can be accessed at NASDAQ, where the earnings growth between 2013 and 2012 has been stated as 9.70%.
At the beginning of 2008, GE's stock price was just under 40 dollars. It plummeted to less than 10 dollars in 2009 due to the global financial crisis. In 2010, the price was stable at around 15 dollars. During 2011, the price stayed strong and crossed the 20 dollar threshold on few occasions, however, the last quarter of 2011 was a bumpy one and the price fell to 15 dollars on four different occasions. From 2012 onwards, there has been a gradual increase in the stock price as it has risen from under 20 dollars at the beginning of January 2012 to $23.41 on the 15th of February 2013.
The data for the last five years can be accessed here.
The price to earnings (P/E) ratio is the first variable investors use to determine the worth of a company. GE's price to earnings ratio has always been between the 15 and 20 marks, and was low during the financial crisis. Now that it is going strong at around 18, it can be considered a positive sign for investors.
GE's indicated annual dividend is 0.76 according to NYSE. Given that the company is diversifying its operations, is growing steadily, and is making handsome profits, it can be expected that the dividend would increase in the next couple of years.
To Buy or Not to Buy
We have discussed a variety of facts and figures about GE when it comes to the stock market, giving you a good background on current positions, financials and more.
As for a rating on the stock, the consensus recommendation on NASDAQ, NYSE, Yahoo Finance, and Investorguide.com is to buy GE stock. Looking into these more, the following are the things going in GE's favor:
- GE's stock value has been steady over the last few years.
- The company's revenue growth for last year was more than 1.8%, and the estimated earnings growth for the next five years in 10.5%.
- The company has global resources, operates internationally, and has an extremely diverse portfolio.
- The company is more than a century old, so brand name and dependability are not an issue.
- The company is diversifying its portfolio even further and is expanding its operations.
However, there are a few things going against GE, including the following:
- The company has still not gained its previous stock value of around 40 dollars, and is still feeling the after effects of the global financial crisis in this regard.
- The recovery has been steady but slow, investors holding GE shares before the global financial crisis have still not regained full value on their investments.
If you weigh the good verses the bad, GE is a smart investment choice for most investors. If you are looking to invest heavily and cash out for a quick profit, GE might not be the best option for you. There is growth in GE stocks, but the growth is not exponential, and you will have to hold onto the shares for a while before you reach your expected profit margins. Therefore, short-term investors might not benefit greatly from GE.
If you are looking for a long-term investment, GE is an ideal choice. Considering that the stock value in 2010 was around 15 dollars compared with what it is now, the steady growth patterns are ideal for investors who want to buy and hold onto their shares for a couple of years. Investments made for six months to a year can also be largely profitable as indicated by the current facts and figures.
In conclusion, GE is a safe investment for long-term investors, and we recommend buying GE stock for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was written by an analyst at Catalyst Investments.