David and Goliath stories are common in the investing world, and you'll frequently find industry giants and upstarts fighting head-to-head to capture market share in promising areas. General Electric (GE +2.10%) is a massive enterprise that covers a huge swath of the industrial sector, ranging from power and aerospace to oil and gas services and healthcare. CalAmp (CAMP +0.00%) is tiny by comparison, but the company has sought to tap into the Internet of Things (IoT) trend to help create a mobile resource-management platform to handle increasingly interconnected business assets.
GE has aspirations in the IoT sector, as well, but it's unclear whether it can overcome big challenges to beat out its more focused, smaller rival, while also pursuing its many other opportunities. Below, we'll look at the respective performances of CalAmp and General Electric to see which one looks more promising for investors right now.
Image source: CalAmp.
Stock performance and valuation
CalAmp and General Electric have gone in opposite directions recently. CalAmp stock is up more than 40% over the past 12 months, while GE has lost more than half of its value since April 2017.
Comparing valuations, it's almost impossible to get a good judgment of relative value looking at trailing earnings because one-time factors, like tax reform and various restructuring charges, have dramatically affected financial results over the past few months. Yet when you turn to near-term future estimates of earnings performance, General Electric looks less expensive than CalAmp, but not by as wide a margin as you might expect.
GE's forward multiple of 12 reflects lower expectations on the bottom line from investors than in past years, but CalAmp weighs in with a quite reasonable figure of 17 times forward earnings. Neither of these stocks is expensive, and as we'll see in greater detail below, it's hard to penalize CalAmp, given its clearer growth opportunities.
Dividends
General Electric gets an easy victory on the dividend front because CalAmp doesn't pay a dividend at all. That makes GE's current yield of 3.6% look especially good by comparison.
Yet General Electric hasn't been the ideal pick for dividend investors lately, either. In order to save money, the conglomerate slashed its dividend payout by 50% back in November, and some investors believe that even the scaled-back payments that it's making to shareholders won't be sustainable unless GE sees quick improvement in its business results. After having been a reliable dividend payer for decades, GE's cuts during the financial crisis in the late 2000s and now late last year have made dividend investors gun-shy about investing for income in the conglomerate's shares.
Growth prospects and risks
The big question is where growth will come from for these companies. CalAmp's strategy is clear: use increased interest in the Internet of Things to drive expansion in as many areas as possible. Recently, relationships in the telematics area have grown increasingly important, with the company's collaboration with Caterpillar (CAT +2.83%) bearing fruit in the form of record sales to the heavy-equipment manufacturer.
New attempts to break into the software-as-a-service arena with its platform of supply-chain software have gone well early on, and CalAmp sees plenty of opportunity in those areas, as well. Despite short-term guidance concerns, investors like CalAmp's international aspirations and believe it can tap into a huge and growing addressable market effectively.
General Electric faces more fundamental questions. New CEO John Flannery wants to redefine GE's corporate culture, beginning the long process of turning a big ship away from decades of legacy behavior that's in danger of leaving the company permanently behind. Refocusing General Electric toward its strongest segments of aviation, healthcare, and energy is a no-brainer, but exactly how to do so, while finding a graceful exit to the conglomerate's largely unsuccessful foray into the power business, will take time to figure out. Digital initiatives will be a crucial part of GE's evolution, but even Flannery wants to be more prudent about spending in the area to ensure that financial resources aren't stretched to the breaking point.
CalAmp and General Electric both have solid opportunities ahead of them, but CalAmp's value proposition and growth prospects are clearer. By contrast, it'll take a lot more work for a company of GE's size to right the ship and start moving higher once again.
