Having opened my position in General Electric (NYSE:GE) in late November of 2016 and given the fact that it is trading near its 52-week lows I believe it is a great time to investigate what is going on with this stock. The stock is off to a bad year moving lower by 10.5%. I own the stock in my Portfolio of 12 and the stock hasn't performed to my expectations so far. I feel it is important to examine the specific valuation, financial, and technical situations of GE to see what is really going on with the stock especially after the company reported a rocky first quarter earnings report.
The company currently trades at a trailing 12-month P/E ratio of 26.14, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.96 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.89 per share and I'd consider the stock inexpensive until about $28. The 1-year PEG ratio (1.65), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 15.81%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 15.81%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 12.28%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.39% with a payout ratio of 89% of trailing 12-month earnings. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.39% yield of this company is good enough alone for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock is bouncing off of oversold territory with a current value of 41.53 relative to the rest of the market. Usually a value of 30 indicates an oversold condition. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars increasing in height which tells me bullish moment is probably about to mount in the name. As for the stock price itself ($28.28), I'm looking at the 20-day simple moving average (currently $28.62) to act as resistance and$27.88 t o act as support for a risk/reward ratio which plays out to be-1.4% to 1.2%.
Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and fairly valued on earnings growth expectations with great near- and long-term earnings growth estimates. Financially the company does pay a good dividend and has decent financial efficiency ratios. On a technical basis the risk/reward ratio shows me there is more risk than reward right now.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am/we are long GE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.