Generac Holdings Inc (GNRC, Financial) recently reported a daily gain of 0.87%. However, over the past three months, the stock has experienced a loss of 4.87%. Despite this, the company's Earnings Per Share (EPS) stands at 2.41. So, is the stock significantly undervalued? This article aims to answer this question by providing a comprehensive valuation analysis of Generac Holdings. Read on for an in-depth look at the company's financials and valuation.
Introduction to Generac Holdings
Generac Power Systems, under the umbrella of Generac Holdings Inc (GNRC, Financial), designs and manufactures power generation equipment. The company serves residential, commercial, and industrial markets, offering 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. With a current stock price of $113.22 per share, Generac Holdings has a market cap of $7 billion. However, the GF Value, an estimation of the fair value of the stock, stands at $329.28.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return is likely to be higher.
According to the GuruFocus Value calculation, Generac Holdings (GNRC, Financial) stock is believed to be significantly undervalued. With its current price of $113.22 per share, the stock is likely to have a much higher long-term return than its business growth, given its significant undervaluation.
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Financial Strength of Generac Holdings
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. Generac Holdings has a cash-to-debt ratio of 0.1, which is worse than 91.62% of companies in the Industrial Products industry. GuruFocus ranks the overall financial strength of Generac Holdings at 5 out of 10, indicating that the financial strength of Generac Holdings is fair.
Profitability and Growth of Generac Holdings
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Generac Holdings has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and Earnings Per Share (EPS) of $2.41. Its operating margin is 8.11%, which ranks better than 57.52% of companies in the Industrial Products industry. Overall, the profitability of Generac Holdings is ranked 9 out of 10, indicating strong profitability.
Growth is probably the most important 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. The 3-year average annual revenue growth rate of Generac Holdings is 26.3%, which ranks better than 87.76% of companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 18.3%, which ranks better than 65.56% of companies in the Industrial Products industry.
Comparing ROIC and WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Generac Holdings's ROIC is 6.35, and its cost of capital is 10.71.
Conclusion
Overall, Generac Holdings (GNRC, Financial) stock is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 65.56% of 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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