Unveiling Generac Holdings' (GNRC) True Worth: Is It Really Priced Right? A Comprehensive Guide
Generac Holdings Inc (NYSE:GNRC) has seen a 2.24% increase in its stock price today, despite a 23.99% loss over the past three months. With an Earnings Per Share (EPS) of 2.41, the question arises: is the stock significantly undervalued? This article delves into a comprehensive valuation analysis of Generac Holdings to provide an answer. Read on for a thorough exploration of the company's value.
Company Overview
Generac Holdings Inc designs and manufactures power generation equipment, serving residential, commercial, and industrial markets. It offers standby generators, portable generators, lighting, outdoor power equipment, and a suite of clean energy products. The majority of its sales are generated in the United States. Currently, Generac Holdings' stock price stands at $105.76, significantly lower than its fair value (GF Value) of $331.34. This implies that the stock might be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor reflecting past returns and growth, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it indicates overvaluation and potentially poor future returns. Conversely, if it is significantly below the GF Value Line, it suggests undervaluation and potentially high future returns.
For Generac Holdings (NYSE:GNRC), the GF Value indicates significant undervaluation. With a market cap of $6.60 billion, the stock's future return is likely to be much higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Generac Holdings has a cash-to-debt ratio of 0.1, ranking worse than 91.7% of 2845 companies in the Industrial Products industry. Based on this, GuruFocus ranks Generac Holdings's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Generac Holdings has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $4 billion and Earnings Per Share (EPS) of $2.41. Its operating margin of 8.11% is better than 55.98% of 2894 companies in the Industrial Products industry. Overall, GuruFocus ranks Generac Holdings's profitability as strong.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Generac Holdings' 3-year average annual revenue growth rate is 26.3%, ranking better than 87.57% of 2735 companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 18.3%, ranking better than 65.54% of 2426 companies in the Industrial Products industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Generac Holdings's ROIC was 6.35 while its WACC was 10.97.
Conclusion
In conclusion, Generac Holdings (NYSE:GNRC) is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 65.54% of 2426 companies in the Industrial Products industry. To learn more about Generac Holdings stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
