Generac Holdings Inc (GNRC, Financial) has recently shown a daily gain of 2.44% and a 3-month gain of 4.21%, with an Earnings Per Share (EPS) of $2.55. However, the critical question on investors' minds is whether the stock is significantly undervalued. To address this, we will delve into a detailed valuation analysis of Generac Holdings, inviting readers to explore the financial intricacies that define its market position.
Company Introduction
Generac Holdings Inc (GNRC, Financial), with a market cap of $7 billion, is a leading designer and manufacturer of power generation equipment, serving residential, commercial, and industrial markets. Its product lineup includes standby generators, portable generators, lighting, outdoor power equipment, and a suite of clean energy products. The company's significant presence in the United States contributes to the majority of its sales. When compared to the current stock price of $113.48, Generac Holdings seems to be significantly undervalued, as its GF Value stands at $267.93, suggesting a substantial margin of safety for investors.
Summarize GF Value
The GF Value is a proprietary metric that calculates the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line indicates the fair value at which the stock should ideally trade. If the stock price is significantly below this value, as is the case with Generac Holdings (GNRC, Financial), the stock is considered undervalued, suggesting a higher potential for future returns.
As of the date of analysis, Generac Holdings (GNRC, Financial) has a GF Value of $267.93, which is starkly higher than its trading price of $113.48. This discrepancy indicates that the stock is significantly undervalued, and therefore, it may offer a promising long-term return that could potentially outpace the company's business growth.
Financial Strength
Investors should consider a company's financial strength to avoid the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio, which stands at 0.09 for Generac Holdings, provide insight into financial resilience. Despite being lower than many of its industry peers, Generac Holdings' overall financial strength is rated as fair, with a GuruFocus ranking of 6 out of 10.
Profitability and Growth
Investing in profitable companies, particularly those with consistent long-term profitability, is generally less risky. Generac Holdings has maintained profitability for the past decade. With an annual revenue of $4 billion and an operating margin of 8.58%, it ranks well within its industry. The company's profitability rank is a robust 9 out of 10, suggesting a strong financial performance.
Company growth is also a vital factor in valuation, as it's closely tied to a company's long-term stock performance. Generac Holdings has demonstrated commendable growth rates, with a 3-year average revenue growth rate outperforming 87.51% of its industry peers. Its EBITDA growth rate further reinforces its competitive standing in the market.
ROIC vs WACC
An effective measure of a company's profitability is the comparison between its Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Generac Holdings currently has an ROIC of 6.38, which is below its WACC of 11.69, indicating that it's not earning enough on its investments to cover its cost of capital. This is an area where investors should exercise caution.
Conclusion
In conclusion, Generac Holdings (GNRC, Financial) presents as significantly undervalued based on its GF Value. The company's financial condition is fair, and its profitability is strong. It has a growth rank that surpasses a significant portion of its industry counterparts. For a more detailed exploration of Generac Holdings' financials, interested investors can review its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
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.
