GEV Shares Sink 5.4% In A Day, Now Is Not The Time To Buy The Stock
We believe there is a near-equal mix of good and bad in GEV stock given its overall Moderate operating performance and financial condition. But keeping in mind its Very High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | Very High |
| What you get: | |
| Growth | Moderate |
| Profitability | Very Weak |
| Financial Stability | Very Strong |
| Downturn Resilience | N/A |
| Operating Performance | Moderate |
| Stock Opinion | Unattractive |
But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure
Let’s get into details of each of the assessed factors but before that, for quick background: With $158 Bil in market cap, GE Vernova provides electricity generation through hydro, gas, nuclear, steam, and wind, alongside grid solutions, power conversion, solar, and storage services across three segments.
[1] Valuation Looks Very High
| GEV | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 4.3 | 3.3 |
| Price-to-Earnings Ratio | 136.4 | 24.0 |
| Price-to-Free Cash Flow Ratio | 58.2 | 21.4 |
This table highlights how GEV is valued vs broader market. For more details see: GEV Valuation Ratios
[2] Growth Is Moderate
- GE Vernova has seen its top line grow at an average rate of 8.5% over the last 3 years
- Its revenues have grown 8.5% from $34 Bil to $37 Bil in the last 12 months
- Also, its quarterly revenues grew 11.1% to $9.1 Bil in the most recent quarter from $8.2 Bil a year ago.
| GEV | S&P 500 | |
|---|---|---|
| 3-Year Average | 8.5% | 5.3% |
| Latest Twelve Months* | 8.5% | 5.1% |
| Most Recent Quarter (YoY)* | 11.1% | 6.1% |
This table highlights how GEV is growing vs broader market. For more details see: GEV Revenue Comparison
[3] Profitability Appears Very Weak
- GEV last 12 month operating income was $654 Mil representing operating margin of 1.8%
- With cash flow margin of 9.8%, it generated nearly $3.6 Bil in operating cash flow over this period
- For the same period, GEV generated nearly $1.2 Bil in net income, suggesting net margin of about 3.2%
| GEV | S&P 500 | |
|---|---|---|
| Current Operating Margin | 1.8% | 18.6% |
| Current OCF Margin | 9.8% | 20.2% |
| Current Net Income Margin | 3.2% | 12.7% |
This table highlights how GEV profitability vs broader market. For more details see: GEV Operating Income Comparison
[4] Financial Stability Looks Very Strong
- GEV Debt was $0.0 at the end of the most recent quarter, while its current Market Cap is $158 Bil. This implies Debt-to-Equity Ratio of 0.0%
- GEV Cash (including cash equivalents) makes up $7.9 Bil of $53 Bil in total Assets. This yields a Cash-to-Assets Ratio of 14.9%
| GEV | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 0.0% | 20.3% |
| Current Cash-to-Assets Ratio | 14.9% | 7.2% |
[4] Downturn Resilience Is N/A
GEV has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read GEV Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.