Generac Holdings Inc (GNRC, Financial) recently reported a daily gain of 4.35%, and a 3-month gain of 0.57%. With an Earnings Per Share (EPS) of 2.41, the question arises: is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of Generac Holdings, encouraging readers to delve deeper into the company's financial performance.
Company Overview
Generac Power Systems, operating under Generac Holdings, designs and manufactures power generation equipment serving residential, commercial, and industrial markets. The company offers standby generators, portable generators, lighting, outdoor power equipment, and a suite of clean energy products. The majority of total sales are generated in the United States.
Despite a current stock price of $112.24, the GF Value, an estimation of fair value, stands at $329.22. This discrepancy suggests that Generac Holdings may be significantly undervalued. The company has a market cap of $7 billion and sales of $4 billion.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is 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 that the stock should ideally be traded at.
Generac Holdings, with its current price of $112.24 per share and a market cap of $7 billion, appears to be significantly undervalued based on the GF Value. This undervaluation suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Generac Holdings has a cash-to-debt ratio of 0.1, ranking worse than 91.59% of companies in the Industrial Products industry. The overall financial strength of Generac Holdings is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Generac Holdings, with high profit margins and a operating margin of 8.11%, ranks better than 57.52% of companies in the Industrial Products industry. The company's overall profitability is ranked 9 out of 10, indicating strong profitability.
Company growth is a crucial factor in valuation. The 3-year average annual revenue growth rate of Generac Holdings is 26.3%, ranking better than 87.76% of companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 18.3%, ranking better than 65.56% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Generac Holdings's ROIC was 6.35, while its WACC came in at 10.71.
Conclusion
In conclusion, the stock of Generac Holdings appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 65.56% of companies in the Industrial Products industry. For more information about Generac Holdings stock, you can check out its 30-Year Financials here.
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