General Engines (NYSE:GM) has faced tremendous challenges over the past three years. In late 2019, a six-week UAW strike dramatically reduced the general’s output, revenue, profits and cash flow. In 2020, factory closures related to the COVID-19 pandemic had an even greater impact on these measures. Last year, the global shortage of semiconductors had a similar effect.

Nonetheless, GM managed to post record earnings and solidly positive free cash flow in 2021. The company is on track for even better overall performance in 2022. Plus, it has strong growth potential ahead of term thanks to its aggressive investments in electricity. autonomous vehicles (EV) and autonomous vehicles (AV).

Another revenue beat

In the fourth quarter, General Motors generated adjusted operating income of $2.8 billion and adjusted earnings per share (EPS) of $1.35. That comfortably beat the Wall Street analyst consensus of $1.19. It also beat the company’s forecast, which had already been increased once during the quarter.

For the full year, GM reported adjusted operating profit of $14.3 billion and adjusted EPS of $7.07: both all-time highs.

Image source: General Motors.

GM’s earnings performance was particularly notable as the company only delivered 2.3 million vehicles in its main North American market in 2021 (due to chip shortages). In 2017 and 2018 — the last two years it didn’t face major production constraints — the automaker delivered more than 3.5 million vehicles in North America. As supply constraints ease and production recovers, this will unlock a substantial amount of additional revenue and profit.

Waiting for another great year

Fortunately, semiconductor supplies are already improving for GM. As a result, management expects wholesale shipments to increase 25% to 30% year-over-year in 2022. This will lead to a strong increase in revenue.

Despite higher projected revenues, GM forecasts adjusted operating profit of between $13 billion and $15 billion and adjusted EPS of $6.25 to $7.25 this year. The midpoints of these ranges are slightly below the company’s performance in 2021.

However, this outlook incorporates more than $2 billion in additional spending on growth initiatives. This includes software development and engineering costs for new electric vehicle models, investments in ancillary businesses, and expenses related to the launch of a robotaxi service at Cruise (GM’s AV subsidiary). Also, the company’s projections can be conservative: Under Mary Barra’s leadership, GM has established an impressive track record of beating its forecasts.

Cash recovery in progress

One financial metric continued to lag for General Motors in 2021: free cash flow. Adjusted automotive free cash flow for the full year was $2.6 billion, consistent with 2020. In the past three years combined, GM has recorded more than $32 billion of adjusted operating profit, but only generated $6.3 billion of adjusted automotive free cash flow.

Image source: General Motors.

Interest charges, tax payments and investments in growth initiatives account for some of this disparity. However, the main factor weighing on the general’s cash flow since 2019 has been cumulative working capital of more than $14 billion due to lower dealer inventory related to GM’s production constraints.

GM began to replenish dealer inventory last quarter (albeit slowly), resulting in a sharp recovery in free cash flow. This trend is expected to continue in 2022. Management estimates that automotive adjusted free cash flow will rebound to between $7 billion and $9 billion this year, despite a sharp increase in capital spending. Free cash flow could increase again in 2023 as production constraints ease.

Excellent long-term prospects

Looking beyond the next year or two, General Motors is poised to cash in on its early investments in electric and audio-visual vehicles. Cruise recently started offering limited robotaxi service to the public and only needs one more permit to start charging for rides in its home market of San Francisco. Meanwhile, GM is rapidly adding battery and electric vehicle manufacturing capabilities and plans to launch many new electric vehicle models over the next few years.

Last fall, GM predicted it could double revenue to between $275 billion and $315 billion by 2030 while increasing its profit margin. Although there is no guarantee that he will achieve this, these goals seem achievable. They assume fairly modest growth in the core automotive business, complemented by significant new revenue streams from Cruise’s robotaxis, connected services and other new business areas.

Despite this growth potential, GM shares are trading for just 7.5 times earnings. At this low valuation, the stock has considerable upside potential even if the company misses some of its targets over the next eight years.

10 stocks we like better than General Motors
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and General Motors wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of January 10, 2022

Adam Levine-Weinberg is the owner of General Motors. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.