Is General Electric (NYSE: GE) a Value Investment or a Value Trap?

Strangely, General Electric (NYSE: GE) could be one of the best value investments around.

To explain GE is cheap; Mr. Market priced its shares at $7.61 on 10 June 2020. Yet General Electric generates enormous amounts of cash.

For example, General Electric reported an ending cash flow of $47.774 billion and an investing cash flow of $19.086 billion on 31 March 2020. Additionally, GE had $89.585 billion in cash and short-term investments on 31 March 2020.

General Electric Makes a lot of Money

Thus, GE is a cash-rich company, but it also makes a lot of money. For instance, General Electric reported a quarterly net income of $6.233 billion and a quarterly operating income of $1.654 billion on 31 March 2020.

Additionally, GE reported a quarterly common net income of $6.156 billion and a quarterly gross profit of $4.28 on the same day. Hence, General Electric can make enormous amounts of money.

However, that money can fluctuate. In fact, GE’s quarterly gross profit fell from $6.146 billion on 31 December 2019 to $4.828 billion on 31 March 2020. Moreover, the operating income fell from $2.954 billion on 31 December 2019 to $1.654 billion three months later.

Is General Electric a Value Trap?

General Electric (NYSE: GE) could be a value trap. I describe a value trap as a company with some outstanding value characteristics but little growth potential and a low margin of safety.

A value trap stock sits at a cheap price and sometimes collapses quickly. General Electric could be a value trap because of its lack of growth.

Stockrow estimates General Electric’s revenue growth rates fell for four quarters in the past year. For instance, GE’s revenue growth fell by -20.1% in the quarter ending on 31 March 2019, by -1.14% in the quarter ending on 30 June 2019, and by -7.56% in the quarter ending on 31 March 2020.

Are General Electric’s Revenues Shrinking?

However, General Electric’s revenues grew by 24.9% in the quarter ending on 31 December 2019. Hence, GE could be incapable of sustainable growth.

Notably, General Electric’s revenues could be shrinking. Conversely, GE’s quarterly revenues grew from $22.202 billion on 31 March 2019 to $28.831 billion on 30 June 2019. GE’s quarterly revenues fell to $23.36 billion on 30 June 2019 and $20.821 billion on 31 December 2019.

Finally, General Electric’s quarterly revenues fell to $20.524 billion on 31 March 2020. Given those numbers, GE’s business and moneymaking potential could be falling.

General Electric could be a value trap because its overall business shrinks.

Is General Electric a Good Stock?

Strangely enough, General Electric (NYSE: GE) could be a good investment because of its low price.

On the positive side, General Electric is cheap it traded at $7.61 on 8 June 2020. On the negative side, General Electric has lost a lot of share value this year.

To explain, General Electric shares started at $11.93 on 2 January 2020 that rose to $12.94 on 29 January 2020. GE shares then fell to $6.11 on 23 March 2020 and rose to $8.52 on 8 June 2020. Then fell to $7.61 on 10 June 2020.

Is General a Good Dividend Stock?

Oddly, I consider General Electric a poor dividend stock. To explain, General Electric paid a quarterly dividend of 1₵ on 9 March 2020. That works out to 4₵ a year.

Moreover, estimates GE’s annualized dividend growth rate at -89.19% for one year and -95.7% for three years. Therefore, dividend investors could lose money by buying General Electric.

I advise dividend investors not to buy GE until they raise its dividend. Plus, I think here are better cheap dividend stocks out there.

Note: I think GE has the potential to be an outstanding dividend stock. General Electric could be an excellent dividend stock if they pay out more of the cash as dividends.

Is GE a Sleeping Giant?

I think GE could be a sleeping giant of a company. To explain, I think GE could experience enormous amounts of growth under the right management.

To elaborate, GE could use all the cash it is accumulating to buy up other profitable or potentially profitable companies. For instance, GE could buy tech companies with fast growing digital platforms such as Grubhub (NYSE: GRUB) or Instacart. Or GE could engage in a Warren Buffett strategy of buying up profitable but obscure companies.

Finally, GE could become an infrastructure company by supplying resources such as electricity or transportation direct to the public. For instance, GE could supply electricity via solar panels or wind turbines or provide transportation through system such as a Hyperloop.

Could Imitating Elon Musk Save GE?

GE could enter the infrastructure business adopting Elon Musk’s strategy of developing new infrastructure and marketing that infrastructure or the services it provides straight to the public. For example, Tesla Motors (NASDAQ: TSLA) builds cars, solar panels, and batteries and sells them directly to the public.

In addition, SpaceX provides space travel by building rockets and space capsules. SpaceX sells those products’ services to customers such as government and big business. Finally, SpaceX’s subsidiary Starlink could provide wireless internet to hundreds of millions of people all over the world.

Forbes valued the privately held SpaceX at $32 billion in June 2020. However, Morgan Stanley estimates SpaceX could be worth $120 billion soon, Business Insider reports. In contrast, General Electric had a market capitalization of $66.565 billion on 10 June 2020.

Under the right leader, GE could adopt a similar strategy. However, I do not foresee such a leader walking into General Electric’s executive offices anytime soon. Until such a leader appears at GE, I think investors need to avoid General Electric (NYSE: GE).