Following an analysis from Goldman Sachs, it looks like General Motors shares are in a bit of trouble. In a note on Monday, analyst David Tamberrino shared some strong opinions regarding the global automaker’s future value:
Looking ahead into 2018 and given the current valuation level, we see a downward inflection in GM earnings and consequently downgrade shares to sell… Our work on pickup trucks and crossovers suggest that GM likely experiences volume and mix headwinds that exacerbate the cyclical profit headwinds. Combined, we see this driving 2018E EBIT-adjusted down by 22% yoy and compressing overall corporate margins. We see 28% downside to our 12-month price target of $32.
After that note was released to the public, company stock saw a 2.9 percent drop in the same day. From 2017 to Friday, shares were up 28 percent, mostly due to the speculation that the company was making strides in autonomous driving in a way that appealed to Wall Street. While Adam Jonas, an analyst at Morgan Stanley, suggested that people hold their GM shares, David Tamberrino recommends dropping it completely.
While you might be scratching your head at this news given the manufacture’s strong bottom line, it’s a matter of market expectations. As of right now, the car manufacturer is having no issues and sales have been doing well. When it comes to the stock market, it’s all about the perceived future of the company. If analysts believe that the shares will begin losing value in the future, they tell people to sell. If shareholders wait too long, they may either lose profit or gain less than they potentially could have.
Why does this matter? It reflect Wall Street’s speculative nature, more interested in tech companies that lose money than car companies that make money. At the end of the day, this is all just a prediction from one influential analyst. GM shares might actually continue rising in the future, but people just don’t know. Goldman Sachs might spook many nervous shareholders to drop the stock. Not only is GM losing investors now, but this statement might deter future investors as well. This is going to have a negative impact on the automaker, but only time will tell if Tamberinno is correct.