Should you invest in GM shares as chip shortage weighs on Q3 sales?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 1, 2021
  • General Motors shares on Friday edged slightly higher despite revealing chip shortage headwinds.
  • The company said its Q3 sales fell by more than 218,000 units as chip shortage weighed in.
  • It also said the factors that affected supply in Q3 appear to be improving.

On Friday, General Motors Co. (NYSE:GM) said its Q3 sales fell by 218,195 to 446,997 amid supply chain constraints. The semiconductor industry struggled from the adverse effects of covid-19, resulting in reduced chip supply. As a result, automotive shipments suffered across the world, with companies like GM forced to negotiate with dealers and customers.

However, the situation seems to be easing with Steve Carlisle, executive vice president and president, GM North America, saying wholesale and customer deliveries are improving. Carlisle also assured dealers that they will continue to receive a steady flow of vehicles held at plants, with the company restarting production at crucial crossover car plants.

Is the GM stock undervalued?

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With the chip supply constraints easing, optimism towards automakers could resume, boosting stock prices. As a result, investors will start looking at companies from a valuation perspective, without questioning the potential impact of chip shortage.

General Motors shares trade at an attractive P/E ratio of 6.10, making the stock a strong candidate for value investors. Moreover, analysts expect its earnings per share to grow by 16.46% next year and at an average annual rate of 13.25% over the next five years.

Therefore, growth investors could also find GM shares compelling going into Q4.

Source – TradingView

Can the rebound continue?

Technically, General Motors shares appear to have recently completed a bullish breakout from the descending channel formation. As a result, the stock has rallied closer to the 100-day moving average in the intraday chart.

However, it still seems far from reaching the overbought conditions of the 14-day RSI. Therefore, investors could target extended gains at approximately $58.64 or higher at $63.90.

On the other hand, if the stock pulls back after finding resistance from the 100-day MA, it could find support at $48.35 or lower at $43.02.

GM is an exciting buy

In summary, although General Motors Q3 sales plummeted significantly from the same period a year ago, the company’s statement indicates optimism going into Q4. 

Moreover, with the stock trading at a compelling P/E ratio of just 6.10, it could be time to buy ahead of the recovery.

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