Investing

Call Option Buyers Flock to GM After Its Beat-and-Raise Results

Larry Ramer

Published: July 28, 2023 9:27 pm

After General Motors (US:GM) delivered “beat-and-raise” second-quarter results on the morning of July 25, GM stock is nonetheless well below the levels at which it closed on July 24.

Interestingly, the put/call ratio of GM stock remained neutral on July 25, according to data compiled by Fintel. On the other hand, the number of call options on GM stock acquired was noticeably elevated on July 25.

Further, with the American auto market showing multiple, other signs of revving up, GM stock continuing to trade at a low valuation, and the firm’s business obviously performing very well, the shares look like a buy for some investors at this point.

Beat-and-Raise Results and Mixed Options Data

The automaker reported Q2 earnings per share, excluding some items, of $1.91, versus analysts’ average estimate of $1.85. On the top line, GM delivered sales of $44.75 billion, well above the mean estimate of $42.64 billion.The firm’s revenue increased 25% year-over-year in Q2, while its net income soared 52% YOY.

Most impressively, the management team led Chair and CEO Mary Barra increased its 2023 sales guidance to $12 billion – $14 billion from $11 billion – $13 billion. As reasons for the increase, GM cited “stronger-than-expected pricing, demand and capital discipline,” CNBC reported.

The overall put/call ratio for GM stock on July 25 was 1.0, little changed from the previous week and indicating that the sentiment of options’ buyers towards the name remains neutral.

However, in bullish news for GM stock, some 106,396 call options on the name were bought on July 25. That was the highest number of call options acquired for at least 35 days, other than on July 24, the day before GM released its earnings, when 113,177 call options were bought.

Stronger U.S. Auto Market

Besides GM’s strong data, there have been multiplFord’s e other signs recently that the U.S. auto market is significantly accelerating. (US:F) U.S. sales volume jumped 10% last quarter, versus the same period a year earlier, while Honda’s (US:HMC) American sales soared 44% year-over-year in Q2, and Toyota’s (US:TM) U.S. sales increased over 20% last quarter versus Q1.

Further, S&P Global predicts that U.S. “new light vehicle sales” will jump 18% YOY in July. “New light vehicle sales will continue to progress in July, reflecting the current trend of sustained demand levels to the fleet sector while retail sales continue to climb,” the research provider forecast on July 24.

Analysts Weigh in on GM Stock

In the wake of the results, analysts, on average, have a $48.18 price target on the shares, well above their current level. But analysts are divided on the name, with five giving it a ‘buy’ rating, seven a ‘hold’, and one rating it a ‘sell’.

But the company’s sales and profits are obviously surging, and its forward price-earnings ratio is just 5.5. Further, GM is making progress on EVs, as it plans to produce 100,000 of the vehicles in North America in the second half of the year, up from 50,000 in the first half. Additionally, its Cruise autonomous driving unit is also advancing, as the company has begun testing self-driving vehicles in Austin, Texas and is preparing to enter the Miami market.

The shares continue to score high on Fintel’s proprietary quant models, particularly its Value score, at 93.24, and its Quality score, which sits at 83.65. That score, with 100 being the best, identifies high quality companies based on their cash generating efficiencies.

Given these points, relatively conservative investors who are looking for a name with a low valuation and promising growth prospects may want to consider scooping up some of GM’s shares.

This article originally appeared on Fintel