Does Generac Holdings Offer Value After Recent Clean Energy Expansion and 16% Drop?

• Curious if Generac Holdings is a hidden gem or just fairly priced in today’s market? You’re not alone, and getting valuation right is more important than ever.
• The stock price recently gained 3.8% over the last week, but it's still down 16.2% for the past month. This might have some investors weighing both growth prospects and potential risks.
• News over the past few weeks has highlighted Generac’s expanding footprint in the clean energy sector and its ongoing investments in product innovation, both of which have shaped market sentiment. At the same time, broader economic trends and shifts in residential demand have contributed to the shares’ volatility.
• For those wondering about how it stacks up, Generac scores a 5 out of 6 on our valuation checks for being undervalued. Next, we’ll break down how those valuation numbers were calculated, but stick around because there is a smarter way to look at fair value that we’ll reveal at the end.

Find out why Generac Holdings's -19.4% return over the last year is lagging behind its peers.

Approach 1: Generac Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today’s dollars. This approach gives investors a sense of what the business is truly worth, based on its capacity to generate cash over time.

For Generac Holdings, the most recent annual Free Cash Flow stands at $449.5 million. Analysts forecast continued growth, with annual Free Cash Flow projected to reach $733.6 million by 2029. After 2029, these figures are further extrapolated to estimate longer-term potential using expected growth rates. All values are considered in US dollars.

Plugging these projections into the DCF model yields an intrinsic fair value of $188 per share. Given that the current market price is about 19.3% lower than the model’s estimate, this suggests that Generac’s stock is undervalued according to this methodology.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Generac Holdings is undervalued by 19.3%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Generac Holdings.

Approach 2: Generac Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric, especially for profitable companies like Generac Holdings. It quickly helps investors gauge how much they are paying for each dollar of current earnings. Generally, a higher PE can indicate optimism about future growth, while a lower PE may suggest lower growth expectations or higher risks.

What counts as a "fair" PE ratio depends on factors such as expected earnings growth and the overall risk associated with the business. Companies with high growth prospects or lower risk profiles often trade at a premium PE, while those facing challenges may appear cheaper by this measure.

Generac Holdings currently has a PE ratio of 28.4x. This compares to an industry average of 30.8x and a peer group average of 32.5x, placing Generac’s valuation slightly below the norm for electrical equipment makers. However, benchmarks like these do not account for company-specific fundamentals.

Simply Wall St's proprietary "Fair Ratio" digs deeper, combining elements like Generac’s earnings outlook, industry trends, profit margins, company size and risk profile. For Generac, the Fair Ratio is calculated at 34.6x. Because it adjusts for fundamentals rather than just broad market averages, it provides a more accurate reflection of where the stock should trade.

Comparing Generac’s current PE of 28.4x with the Fair Ratio of 34.6x highlights that the stock is trading below what would be expected given its fundamentals, suggesting a potential value opportunity.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Generac Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is a practical, story-driven approach that captures your unique perspective on a company, combining your assumptions about its future revenue, earnings, and margins with your estimation of its fair value, all rooted in your interpretation of the company's story.

Narratives connect what you believe about a business, such as its growth drivers or risks, to a customized financial forecast. This then leads directly to a tailored fair value. On Simply Wall St’s Community page, millions of investors use Narratives because they make investment research clear and actionable. This helps you see whether the current price is above or below your own fair value estimate, so you can decide when it makes sense to buy or sell.

Narratives evolve in real time, automatically updating as new earnings reports or news come in, so your investment thesis stays relevant. For example, on Generac Holdings, some users’ Narratives reflect strong confidence in backup power demand (supporting a $250 price target), while others factor in the risks from volatile residential and clean energy segments (resulting in a $165 fair value). This shows how powerful the right Narrative can be for your own decision making.

Do you think there's more to the story for Generac Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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