Stock Analysis

General Electric (NYSE:GE): Only for the Most Patient Investors

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NYSE:GE
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When eye-catching losses meet the broad market decline, the stock gets hit with a double whammy.

Such is the case with General Electric Company (NYSE: GE) which tumbled 10% on the earnings, sinking to a 17-month low. With the rising costs of materials and supply chain disruptions, the company now sees full-year earnings at the low end of its guidance.

View our latest analysis for General Electric

Q1 Earnings Results

  • Non-GAAP EPS: US$0.24 (beat by US$0.05)
  • Revenue: US$16.43b (miss by US$490m)
  • Revenue growth: +0.8% Y/Y

Other highlights

  • Authorized buyback: US$3b
  • Total orders growth: +11%

While the Q1 net loss narrowed from the year ago, the free cash flow did as well, although it missed Wall Street's expectations for US$64.5m.

As per segments, Aviation did the best, rising +12% Y/Y, while Renewable Energy dropped -10%. Citibank analysts noted that ā€žthe renewable business losses were expected but remain eye-catching.ā€œ

Keeping Track of the Turnaround

When a company doesn't profit, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case, one does expect good top-line growth.

Over half a decade General Electric reduced its trailing twelve-month revenue by 10% for each year. That puts it in an unattractive cohort, to put it mildly. Then, it seems appropriate that the share price slid about 11% annually during that time. It's fair to say most investors don't like to invest in loss-making companies with falling revenue. You'd want to research pretty thoroughly before buying, it looks a bit too risky for us.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
NYSE: GE Earnings and Revenue Growth April 27th, 2022

We consider it positive that insiders have made purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think General Electric will earn in the future (free profit forecasts).

What Does This Mean for the Investors?

GE has been a source of struggle and frustration for many of its long-term investors. In the last few years, the company has been almost in a perpetual state of restructuring, which might not be completed until 2024.

Although the management authorized a US$3b stock buyback, for a company the size of GE, it is not that impressive. One of the rare positives is that the first quarter of the year is usually the weakest based on the seasonality.

For all that is worth, GE is facing many of the issues that almost every other conglomerate seems to be facing at the moment: supply chain pressures, inflationary pressures, and Russian sanctions. Yet, until all the spin-offs unwind, it will be hard to make any concise turnaround thesis for anyone except the most optimistic buy-and-hold long-term investors.

While it is well worth considering the different impacts of market conditions on the share price, other factors are even more important. For instance, we've identified 1 warning sign for General Electric that you should be aware of. If you're looking for interesting buying opportunities, check out this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether General Electric is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.

About NYSE:GE

General Electric

General Electric Company operates as a high-tech industrial company in Europe, China, Asia, the Americas, the Middle East, and Africa.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth3
Past Performance0
Financial Health4
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Good value with adequate balance sheet.