Generac Holdings Inc (GNRC, Financial) recently showcased a daily gain of 4.46% and an impressive three-month gain of 32.04%. With an Earnings Per Share (EPS) of 3.63, investors might wonder if the stock is fairly valued at its current price. This analysis delves deep into Generac Holdings' valuation to determine if its market price aligns with its intrinsic value, providing investors with a clear perspective on whether GNRC stands as a prudent investment.
Company Overview
Generac Holdings Inc, a leading name in power generation equipment, caters to residential, commercial, and industrial markets. The company's product line includes standby generators, portable generators, lighting, outdoor power equipment, and innovative clean energy solutions. Predominantly, its sales are generated within the United States. Currently, Generac Holdings trades at $151.22 per share with a market capitalization of $9.20 billion, closely aligning with its GF Value of $140.02, suggesting a fair valuation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Generac Holdings, the GF Value suggests that the stock is currently fairly priced. This assessment is crucial as it indicates that the stock price should, over time, converge with this intrinsic value, assuming stable market conditions.
Financial Strength and Stability
Before investing, evaluating the financial strength of a company is crucial. Generac Holdings has a cash-to-debt ratio of 0.15, which, although lower than many of its peers, reflects certain risks in its capital structure. The company's overall financial strength is rated 6 out of 10 by GuruFocus, indicating a fair level of financial health.
Profitability and Growth Prospects
Generac Holdings has demonstrated strong profitability, with an operating margin of 10.17%, ranking better than 65.43% of its industry peers. The company has maintained profitability over the past decade, which is a positive indicator for potential investors. Additionally, Generac's 3-year average annual revenue growth rate is 18.5%, showcasing its capacity to expand effectively.
Comparative Analysis of ROIC and WACC
An essential aspect of evaluating a company's profitability is comparing its Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Generac Holdings' ROIC stands at 7.28, which is currently below its WACC of 13.66. This discrepancy suggests that the company needs to improve its capital efficiency to generate value exceeding its cost of capital.
Conclusion
In conclusion, Generac Holdings (GNRC, Financial) appears to be fairly valued based on current assessments. The company's solid profitability metrics and growth potential make it an attractive option for investors seeking stable returns. However, the comparison between its ROIC and WACC suggests there is room for improvement in capital efficiency. For a deeper dive into Generac Holdings' financials and performance metrics, potential investors can explore its 30-Year Financials here.
To discover other high-quality companies that may deliver above-average returns, consider exploring 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.
