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In One Chart - June 27, 2018

In One Chart: Is GE on sale?

You’ve likely followed General Electric’s (GE) recent struggles, culminating with their removal from the Dow Jones Industrial Average last week. The 125 year old American giant has seen a steady and constant decline in its share price since the beginning of 2017.

Under Jeff Immelt’s reign as CEO, GE was burned badly on a few strategic moves that went awry, namely GE Capital’s transition from industrial financier to hedge fund just before the crisis of ‘08-’09. John Flannery took over for Immelt in the summer of 2017, and has since managed the company in a manner reminiscent of GE’s legendary chief Jack Welch, although more by necessity than desire.

Because of the share price nosedive, some may see GE as a discount — and GE’s fundamentals just may support those views. GE has been the worst performing component of the Dow over the last three years. The chart below shows key “value stock” metrics for GE and UnitedHealth (UNH) which, conversely, has recently been one of the Dow’s top performers.

The chart shows that while GE’s total return price has dropped by nearly 42% over the last three years, it’s fundamentals aren’t quite as bleak. With the drop in share price, GE’s dividend could be seen as being “on sale”. While the absolute value of GE’s dividends has declined, you might get more yield for your buck than you would from a stock like UNH.

Similarly, GE’s price-to-book has dropped since Q1 of 2017 — that’s a good thing. A low price-to-book is another litmus test used to prove a stock is undervalued when compared to its fundamentals.

The area that would still cause concern for a value investor is GE’s revenue growth — it’s been largely flat and cyclical for the past three years. This being said, Flannery said Tuesday of GE’s restructuring moves, “we are finished,” and so now we wait to see what happens. GE and Flannery are certainly hopeful that margins will be better moving forward.

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