When evaluating the investment potential using a stock pairs strategy between General Motors Co. (GM) and Tesla Inc. (TSLA), certain financial metrics guide the decision to go long on GM and go short on TSLA. Here's a detailed comparison:
Reasons to Consider Buying GM:
Valuation and Earnings Growth: GM's forward P/E of 4.70 is significantly lower than TSLA's forward P/E of 39.32, suggesting that GM is relatively undervalued. GM’s expected EPS next year is $9.08, showing strong profit potential. In contrast, TSLA’s anticipated EPS next year is only $3.64, despite its higher market valuation.
Market Performance and Financial Stability: GM has shown a positive performance over the last half year with a gain of 45.65%, and its year-to-date performance is also strong at 18.93%. This stability is coupled with a robust book-to-share value of $53.57, underscoring financial solidity.
Reasons to Consider Selling TSLA:
High Valuation with Lower Growth Prospects: TSLA’s high forward P/E ratio coupled with a relatively modest EPS growth projection for the next year (36.28%) compared to its current valuation indicates potential overvaluation.
Recent Market Performance: TSLA has experienced significant declines across various time frames: -11.45% over the past week, -17.26% over the past month, and a substantial -31.52% over the past quarter. Such volatility might be concerning for risk-averse investors.
Profitability Concerns: Despite higher gross margins, TSLA’s profitability margins like ROI (21.69%) and operating margin (9.19%) do not fully justify its high valuation, especially when compared to its current market challenges.
Decision:
Long on 3 GM: This position benefits from GM's lower valuation, strong earnings outlook, and recent positive price performance.
Short on 1 TSLA: This position is justified by TSLA’s high valuation, less favorable growth outlook, and recent negative price movements.
Reasons to Consider Buying GM:
Valuation and Earnings Growth: GM's forward P/E of 4.70 is significantly lower than TSLA's forward P/E of 39.32, suggesting that GM is relatively undervalued. GM’s expected EPS next year is $9.08, showing strong profit potential. In contrast, TSLA’s anticipated EPS next year is only $3.64, despite its higher market valuation.
Market Performance and Financial Stability: GM has shown a positive performance over the last half year with a gain of 45.65%, and its year-to-date performance is also strong at 18.93%. This stability is coupled with a robust book-to-share value of $53.57, underscoring financial solidity.
Reasons to Consider Selling TSLA:
High Valuation with Lower Growth Prospects: TSLA’s high forward P/E ratio coupled with a relatively modest EPS growth projection for the next year (36.28%) compared to its current valuation indicates potential overvaluation.
Recent Market Performance: TSLA has experienced significant declines across various time frames: -11.45% over the past week, -17.26% over the past month, and a substantial -31.52% over the past quarter. Such volatility might be concerning for risk-averse investors.
Profitability Concerns: Despite higher gross margins, TSLA’s profitability margins like ROI (21.69%) and operating margin (9.19%) do not fully justify its high valuation, especially when compared to its current market challenges.
Decision:
Long on 3 GM: This position benefits from GM's lower valuation, strong earnings outlook, and recent positive price performance.
Short on 1 TSLA: This position is justified by TSLA’s high valuation, less favorable growth outlook, and recent negative price movements.