Generac Holdings Inc (GNRC, Financial) experienced a daily loss of 3.9%, and a 3-month loss of 21.11%. Despite these losses, the company reported a robust Earnings Per Share (EPS) (EPS) of 2.41. This raises the question: is Generac Holdings significantly undervalued? This article offers an in-depth analysis of Generac Holdings' valuation, providing investors with valuable insights. Stay with us as we explore this further.
Company Overview
Generac Holdings Inc designs and manufactures power generation equipment, serving residential, commercial, and industrial markets. Its product range includes standby generators, portable generators, lighting, outdoor power equipment, and a suite of clean energy products. The majority of the company's sales are generated in the United States. As of September 26, 2023, the stock is trading at $103.22 per share, with a market cap of $6.40 billion. However, the GF Value, our proprietary measure of the stock's fair value, stands at $331.5, suggesting that the stock may be significantly undervalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, which is based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on the summary page provides an overview of the stock's fair value. 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 will likely be higher.
Based on our GF Value calculation, Generac Holdings appears to be significantly undervalued. Given this undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing. Companies with weak financial strength pose a higher risk of permanent loss. Generac Holdings' cash-to-debt ratio of 0.1 is lower than 91.92% of the companies in the Industrial Products industry, indicating a fair financial strength of 6 out of 10.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Generac Holdings has been profitable for 10 out of the past 10 years, with an operating margin of 8.11%, ranking better than 56.3% of companies in the Industrial Products industry. This indicates strong profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth of Generac Holdings is 26.3%, ranking better than 87.7% of companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 18.3%, ranking better than 65.73% of companies in the same industry, indicating robust growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) provides valuable insights into its profitability. Generac Holdings' ROIC of 6.35 is less than its WACC of 10.9, suggesting that the company may not be creating value for its shareholders.
Conclusion
In conclusion, Generac Holdings appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 65.73% of companies in the Industrial Products industry. To learn more about Generac Holdings, you can check out 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.
