GE Jumps A Massive 18.5% In 5 Days – Is This A Buy Signal?

by Trefis Team
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Upside
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Market
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Trefis
GE
General Electric
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GE’s (NYSE:GE) stock has jumped a massive 18.5% over the last 5 trading days, while the S&P 500 has barely moved. What did the company do right? The most identifiable reason behind GE’s rise appears to be an improved outlook and expectation of positive free cash flow in the second half of this year. But is that enough to guarantee returns for anyone looking to invest now? We think that it is unlikely that GE’s stock can sustain an upward trend.

We arrive at our conclusion by assessing GE’s recent market movement from three perspectives:

  1. Relative positioning in the market
  2. Underlying financial trends, and
  3. The output of the Trefis machine learning engine which looks at past patterns to predict near term behavior.

Our dashboard Big Movers: General Electric Moved 18.5% – What Next? lays this out.

What relative positioning suggests: Are you a value investor who identifies and invests in under-priced securities based on market comparisons? Then this might be important to you.

General Electric’s stock price decreased -46.5% this year, from $11.13 to $5.95, before moving 18.5% last week, and ending at $7.05. At the beginning of this year, General Electric’s trailing 12 month P/S ratio was 0.93. This figure decreased -32% to 0.63, before ending at 0.75. So GE is a cheaper stock compared to where it was at the beginning of the year. What about peer comparison? Compared to General Electric’s P/S multiple of 0.92, the figure for its peers Roper Technologies and Emerson Electric stands at 7.73 and 2.3 respectively, which again suggests that GE may have some upside left.

What fundamentals suggest: Want to consider long term investment in GE? Then pay attention here.

General Electric’s stock price increased 18.5% in the last week. In comparison, the stock has decreased -31% between 2017 and 2019, and has decreased -56% between 2017 and now. This implies that the recent move is a sharp reversal in the long-term trend. Whether it sustains or not, depends on how underlying fundamentals shape up. General Electric’s revenue has decreased -4.1% from $99,279 Mil in 2017 to $95,214 Mil in 2019. For the last 12 months, this figure stood at $87,872 Mil, implying a decrease of -7.8% over 2019 numbers. As for profitability, net margins have increased from -8.9% in 2017 to -5.2% in 2019. For the last 12 months, this figure stood at -5%, which is roughly inline with the 2019 figure. These numbers don’t tell a very encouraging story which casts doubt over GE stock’s ability to sustain an uptrend.

What machine learning algorithm suggests: More interested in short term returns? Then you might want to give this perspective more weight.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period and suggests about a 32% probability of GE moving up another 5% over the next 21 trading days. Compared to this, the probability of moving down by -5% is even higher at 41%, suggesting a greater likelihood of downside despite such a strong up move. Our detailed dashboard highlights the chances of GE’s stock rising after a fall and should help you understand near-term return probabilities for different levels of movements.

Taking all 3 perspectives together, we believe that GE may not be the best investment choice right now. But, what if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

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