"Some Investors May Be Worried About Generac Holdings' (NYSE:GNRC) Returns On Capital"

Ladies and gentlemen, let me tell you something: Generac Holdings (NYSE:GNRC) is a company that has been making waves in the specialty industrial machinery subindustry. But there's a catch—some investors are starting to worry about its returns on capital. Let's dive in and see what's really going on!

First things first, let's talk about the numbers. Generac Holdings' Return on Invested Capital (ROIC) is currently at 10.19%. Now, that might sound okay, but when you compare it to its historical performance, it's a different story. Back in December 2016, the ROIC was a whopping 21.21%! That's a massive drop, and it's got some investors scratching their heads.



So, what's causing this drop? Well, it's a combination of factors. The company's operating income has been fluctuating, and its invested capital has been all over the place. For instance, in the quarter ending December 2024, the operating income was $792.056 million, but the invested capital was $3918.348 million. That's a lot of capital tied up, and it's affecting the ROIC.

But here's the kicker: Generac Holdings' ROIC is lower than its Weighted Average Cost of Capital (WACC) of 13.50%. That means the company is not generating returns that match up to its cost of capital. In other words, it's destroying value as it grows. OUCH!

Now, let's talk about the competition. Generac Holdings is in the specialty industrial machinery subindustry, and its ROIC is not exactly shining compared to its peers. While we don't have the exact numbers for its competitors, we can infer that Generac Holdings might be lagging behind. This is a red flag, folks. If Generac Holdings can't keep up with its competitors in terms of capital efficiency, it's going to have a hard time staying ahead in the game.



But it's not all doom and gloom. Generac Holdings has some strong points. Its revenue for the last 12 months was $4.30 billion, with a gross margin of 38.77% and an operating margin of 12.49%. That's not bad at all. And with a debt-to-equity ratio of 0.56 and an interest coverage ratio of 5.98, the company is financially stable.

So, what's the verdict? Should you be worried about Generac Holdings' returns on capital? The answer is yes and no. Yes, because the ROIC is lower than its WACC, and it's not keeping up with its competitors. But no, because the company has strong financials and is generating solid revenue. It's a mixed bag, folks, and it's up to you to decide whether you want to take the risk.

But remember, the market is a fickle beast. It hates uncertainty, and it loves growth. If Generac Holdings can turn things around and start generating returns that match up to its cost of capital, it could be a winner. But if it can't, it's going to be a tough road ahead.

So, what do you do? Do you buy, hold, or sell? That's the million-dollar question. But one thing's for sure: you need to keep an eye on Generac Holdings. It's a company with potential, but it's also a company with risks. And in this market, you can't afford to ignore either.