General Motors (GM 4.54%) has been a great company this year. Shares are up 30% for 2024 as of August 22, outperforming the broader market’s 18% gain. S&P500 Index.

The Detroit-based carmaker is delighting its shareholders at a time when its rival from the other half of the city, fordhas fallen by 10%. But is GM a smart buy right now? Let’s look at both the bull and bear scenarios for this auto stock.

GM’s dynamics

GM’s business is going well, as the company’s financial results for the second quarter of 2024 (ended June 30) were well above Wall Street expectations. A particular highlight was the impressive sales performance, with total revenues approaching $48 billion. Pricing continues to be a tailwind.

The management team was so pleased with the figures that they raised their forecast for the full year. Earnings before interest and taxes The total is expected to reach (on average) $14 billion in 2024.

Like most automakers, GM is aggressively pushing into the Electric vehicle (EV) space. Not surprisingly, the company saw 40% year-over-year sales growth in the EV space, faster than the industry as a whole. The Cadillac LYRIQ, GMC Hummer EV and Chevrolet Blazer EV are piquing buyers’ interest.

But the news wasn’t all good. Growth wasn’t enough to stop management from scaling back investments in electric vehicles. Aside from the fact that demand trends were weaker than industry executives had hoped, it’s also hard to ignore how tough the competition in this space is. And GM is still a long way from being profitable in selling electric vehicles.

Is GM a quality company?

I think investors would be much better off if they only focused on high-quality companies. These are the ones you want to own for the long term. One way to identify such companies is to look for a Economic dividea term popularized by Warren Buffett. In my opinion, GM does not have one.

For example, I don’t think the company has a brand advantage. Competition in the industry is incredibly tough. And I’m convinced that price is perhaps the most important factor in a consumer’s purchasing decision. And there are bigger car companies in the world than this one, and their brand recognition is greater.

To support the argument that this is not a quality company, I would like to point out the financial distress of the automotive industry. Companies must constantly make large investments to expand their production capacity or invest in research and development. And these expenses are necessary just to maintain ongoing operations, let alone growth.

In addition to marketing costs, GM also has to manage raw material and labor costs. Changes in these areas are often outside the company’s control. This usually leads to low operating margins.

GM is a cheap stock

Despite these unfavorable characteristics, which I believe long-term investors should not ignore, someone might still want to own GM shares because of the valuation.

The stock is currently trading at a Price-earnings ratio of 5.3. That’s not a typo. When the market is hitting all-time highs, it’s surprising to find a company at such a low price multiple, which represents a huge 78% discount to the broader S&P 500.

In addition, investors can certainly appreciate management’s aggressive approach. Share buybackswhich helped reduce the number of shares outstanding by a whopping 18% over the past 12 months. “Given our belief that GM’s stock price is still undervalued, you can expect us to continue to actively repurchase shares,” CFO Paul Jacobson said at the company’s last earnings call.

While that sounds great, I still don’t think GM is a worthwhile company, so I have no problem passing on the stock.