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Why General Electric Stock Plunged 56% in 2018

By Reuben Gregg Brewer - Updated Apr 16, 2019 at 5:53PM

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Will this turnaround story ever turn around?

What happened

Shares of General Electric (GE -1.42%) plunged 56% in 2018, according to data provided by S&P Global Market Intelligence. What's most incredible is that decline comes after a nearly 45% drop in 2017. Looking back over the two-year period, General Electric has lost 76% of its market value.

So what

The story here goes back to the GE board replacing longtime CEO Jeffrey Immelt with insider John Flannery in June 2017. It was something of a surprise move, but not overly shocking as investors had been losing patience with Immelt's turnaround efforts. Essentially, his moves weren't producing results, let alone spurring long-term growth. As is often the case when a new CEO takes the helm of a troubled company, Flannery quickly announced that General Electric's business wasn't as healthy as previous management had been claiming.     

A man with his head on a table and a graph behind him heading sharply lower

Image source: Getty Images

The new CEO made plans to sell assets, took a writedown, and ended up trimming the dividend. Flannery was starting to put these plans into action as 2018 got underway. Things weren't moving quickly enough for investors or the board, however, and by October, the board announced that he was being replaced by outsider Lawrence Culp. General Electric normally hires from within, so this decision was a big statement about the troubles the industrial company was facing. Culp came with impressive credentials from his time at the helm of Danaher. And like Flannery before him, he took the reins and quickly announced that the company's business wasn't as good as previously thought. 

Culp announced plans to sell assets, took a writedown, and cut the dividend to $0.01 per share per quarter. That dividend level is nothing more than a token, likely maintained just to allow institutional investors with a dividend requirement to own GE shares.

Throughout all of this change, meanwhile, the company's ongoing business problems showed up in its financial results, with both the top and bottom lines largely inconsistent. That's not surprising based on the big changes that both Flannery and Culp were working on, but erratic financial performance doesn't make it any easier to own a stock with a constantly shifting business direction. As you might expect, concerned investors pushed the shares lower through most of the year.

Now what

Culp has only been at the helm for a few months at this point, so he hasn't had a lot of time to implement his big plans to save GE. In other words, there's still a lot of work to be done. As such, it's best to look at General Electric as a turnaround story. There's probably huge recovery potential, but only aggressive investors should be looking here because of the uncertainty involved. Conservative investors should probably sit on the sidelines until GE makes more concrete progress.

Check out the latest GE earnings call transcript.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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