General Electric does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio and the insufficient earnings growth over the last ten years. The Enterprising Investor takes issue with the level of debt relative to the current assets along with the lack of earnings growth over the last five years. As a result, any purchase of the company is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.
With regard to that intrinsic value, the company has seen its EPSmg (normalized earnings) drop from $1.39 in 2010 to only an estimated $1.33 for 2014. This lack of demonstrated growth does not support the market’s implied estimate for earnings growth of 5.56% annually over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.
Be sure to check out previous ModernGraham valuations of General Electric (GE) for a greater perspective!
Disclaimer: The author did not hold a position in General Electric (GE) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.