General Electric (NYSE:GE) will make a fascinating case study in the future. This is because one of two very binary-type scenarios are happening: either the market is pricing in legitimate issues for which there is little to no data to support, or shares of the conglomerate are remarkably underpriced and the market is behaving irrationally. Taken from the perspective of a sum-of-the-parts, the business is likely worth materially more than it’s trading for today and shareholders who believe in (if they are proven right) an inefficient market will see tremendous upside in the years to come.
A note on methodology
Sadly, as with most companies, there is no perfect way to estimate value with General Electric. The best crack anybody can take at it is to look at the segments that comprise the business and compare their values with similar businesses as I will below. Because there are no truly perfect comparable businesses, this creates some wiggle room, but by dissecting General Electric, you can arrive at a rough estimate of what value does exist in the enterprise. Also, where appropriate, I utilize segment profit multiples, but in some cases I need to use operating income as a substitute.
