It has not been pretty for General Electric (GE) shareholders. What should have been reason to rejoice according to many on June 12th when it was announced that CEO Jeff Immelt was stepping down and was being replaced by John Flannery, GE's stock price rose quickly but has since lost 37.95% since that date. Management then presented its plan to make the company profitable again but at the same time announced the dividend was being reduced by 50%. Shares have lost 10.56% since that announcement. The company is focused on cash flow generation among all its segments. If that is the case, then the company future prospects should look brighter. With shares at depressed levels and trading near 52-week, are they trading at fair value? Time to take a look.
Where are we at?
First, let's take a look at some of the current valuation metrics. GE current price to earnings ratio is 22.3. YCharts reports that the 5-year average is 24.1 while Gurufocus.com shows that GE's 10-year median PE ratio is 17.5. The industry median is 23.1x while the market is 21.7x. These indicators provide a mixed bag of overvalued and undervalued possibilities. Based on the PE, it is not entirely clear where GE really sits.
In one of Chuck Carnevale's articles, he uses the earnings yield to quickly determine the valuation of a stock. The earnings yield is calculated by taking the current earnings divided by the stock's current price. Chuck feels that any value below 6% means that the stock is overvalued. In the case of GE, the TTM EPS is $0.81 and the current price is $18.12. The earnings yield is 4.5% which suggests that GE is overvalued.
The infographic below further shows that GE's PEG ratio is 1.9x which is considered poor value based on
