Generac: My Generator Won’t Run!

A few days ago we had a severe pop-up thunderstorm hit our neighborhood and, during the storm, a bolt of lightening took down a tree which took down some power lines with it. Consequently, we lost power and I had to march out to our garage to retrieve and connect our portable generator. Unfortunately, I was unable to start the generator and was forced to take the carburetor apart to degum it. Though I had allowed it to run out of gas the last time we used it, I neglected to close the fuel tank petcock, thus allowing some residual fuel to run into the carburetor which, eventually, turned into varnish — sheesh!

It was a hard lesson learned, but one I will not forget. Next time, I will be certain to close the petcock, run the carburetor out of gas and then thoroughly drain the tank before storing the unit for another “rainy day.” Luckily, the power to our house was restored within three hours and my family and I did not suffer too, too much. At the height of my frustration and fatigue, I exclaimed to my wife how nice it would be to have a “whole house” generator that would not require so much effort on my part. Well — that certainly did not bode well with my better half, as she quickly exclaimed: “You should consider yourself lucky that we have a generator!” Realizing that she was absolutely correct in her statement, I quickly tucked-tail and turned to seek a desolate place in our house where I could sit, lick my wounds and pout quietly, in private, without getting myself into any more trouble.

The following day (once my wounds had healed 🙂 ), I began thinking about my wife’s comment and how more people should be lucky enough to own their own, portable generator for such occasions. If you are one of those people who buys-in to the idea of “Global Warming,” then you (like me) take pause every now-and-then to think about what it would be like to be one of the poor, unfortunate souls to have their homes wiped-off the face of the map by fire, water or wind.

I live on the east coast and I can tell you that Hurricane Sandy was no picnic, but my family and I were a few of the extremely lucky ones to have skirted almost certain disaster because of the small valley terrain in which we reside. Others around us were not so lucky. The storm, however, was a boon to generator manufacturers like Generac, Holdings Inc. (GNRC). Generac is a company that went public on February 17, 2010, and its stock priced has soared since that time. Can you guess where I’m going with this?

Generac’s shares debuted at $13.00 per share when the company’s stock first began trading on the public markets. Since then, the per share price has risen from $13.00 to its current price ~$39.00 per share — a 300 percent increase!

GNRC Chart Pattern As Of 7/9/2013

StockCharts.com

GNRC Financial & Key Ratio Data For The FY Ending 2012

Looking at the above chart pattern, we see that Generac’s stock price has moved nicely (albeit with some bouts of choppiness) from the lower left to the upper right of the chart. We can also see that volume increased, appreciably, in late October of 2012, and around the first week of May, 2013. The spike in volume in late October of 2012 can be attributed to Hurricane Sandy, which made landfall on the east coast of the U.S. early on October 29th. The spike in volume in May of 2013 occurred shortly after the company announced that it would pay a special $5.00 per share dividend to shareholders.

Looking at the company’s financial figures and key ratio data we see that revenue increased 48.48 percent in 2012 on a Y/Y basis. Here, too, the increase can be attributed to Hurricane Sandy. Of concern, however, (at least for me) are the declines seen in the EPS figure and in the Book Value Per Share figure. Though revenue climbed dramatically in  2012, EPS plummeted 71.82 percent, which I believe may be attributed to a secondary share offering of 11.5 million shares which took place in late November, 2012. The company’s Book Value also declined 40.28 percent. Presently, Generac has a negative Tangible Book Value of -4.45.

One situation which could hurt the EPS figure for 2013 is the secondary offering, which was announced on June 13th of this year, for an additional 6.5 million shares. Also of concern is the fact that, on a quarterly basis, finished goods inventory was up 22.6 percent from 55,777 to 68,402. This could signal  an inventory logjam which would mean that consumers are not purchasing the company’s products.

Generac Finished Goods Figures For The Quarter Ended March, 2013

What More Can I Say?:

I love Generac’s products. Every Christmas season my wife and I take our little girl to see a Christmas lights display which is sponsored by our local CBS Television affiliate to support its Kid’s Camp program. All of the lighting is powered by liquid cooled Generac generators. They are wonderful pieces of equipment that work flawlessly (i.e. if one maintains them properly  🙄 ) and they really could become a “must have” for many homeowners as global climate changes and the severity of the storms produced by such climate changes worsen over time.

At this juncture, however, I would not be willing to initiate a new position in the company. It is, however, one to watch as the company tries to expand its footprint into areas of the world where people do not have major sources of power generation available to them (Africa for example), and whenever the next major storm is predicted to hit one of the areas the company services.

Notes: Charting data provided courtesy of StockCharts.com.

Disclosure: I own shares of GNRC, indirectly, through the Vanguard Total Stock Market (VTI) ETF.

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