General Electric – Many Uncertainties

General Electric (GE) is one of the most followed stocks on the American stock markets. This company was a blue chip for years. Things have changed since 2008. The company’s revenues are shrinking, and the company is now losing money.

GE’s management has a lot of issues to fix before long-term investors should consider investing in the stock.

Financials

GE is on track for one of its worst years during the last decade when it will publish its Fiscal 2018 results. Let’s look at some key stats:

Revenues

Decreasing at an annual rate of 4.6% between 2008 & 2017

Net Income

GE has lost money in 2015, 2017 and is on track for record losses in 2018

Dividend

Dividend per share was slashed from 1.24$ / share in 2008 to 0.84$ / share in 2017

Payout ratio above 100% since 2015 

Shrinking revenues are never a good sign for a company. For a company like GE, it is even worse because of the size of the company. Trends are difficult to stop for a company like GE. The company is trying to control its operating expenses; however, it seems like revenues are shrinking faster.

The company has now lost its profitability. This is again a warning sign. We have read that some investors may be interested in investing in GE because of its dividend yield, currently at 7.15%. This could be risky, because of the company’s decision to scale back on dividend per share since 2008. The current yield is nice because of the drop in the stock price. However, with a payout ratio above 100%, it would not be surprising to see GE cut back on its dividend policy again.

Discussion and Outlook

If we look at the financial results between 2008 and 2017, we see a degradation of the company’s ability to generate revenue. This led, over time, to the current situation were GE is losing billions of dollars per year. The company has recently appointed a new CEO. It will be interesting to see how things will go from now.

The company has reduced its operating expenses in order to match the declining sales. However, this is not enough (yet) to counterbalance the overall effect of shrinking revenues. The company has now a negative net margin. This is never good, most notably for a company with a history of profit generation.

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Disclosure: The author and SI360 portfolio do not own shares of GE, and do not intend to initiate a position in the following month.

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