Generac Holdings (NYSE:GNRC), a designer, manufacturer, and seller of power generation equipment, and energy storage systems for home and industrial applications will announce its first quarter 2022 financial results on May 4. Is GNRC stock a buy ahead of earnings? I would say no. The company had a very strong financial performance in fourth quarter FY 2021 and for the full year 2021 but there is one critical factor: the stock is expensive.
Shares of Generac have losses of nearly 34% year-to-date (YTD) despite a record fourth-quarter 2021 revenue of $1.07 billion, a 40% year-over-year increase, and net income of $143 million, an increase of 14.4% compared to net income of $125 million in the fourth quarter of 2020.
For the full-year 2021, Generac reported a 50% increase in revenue to a record figure of $3.74 billion compared to $2.49 billion in 2020, and net income grew to a record of $550 million and increase of nearly 57% compared to net income of 351 million in 2020.
GNRC Stock: Q1 2022 Earnings Report Expectations
The average estimate for earnings-per-share (EPS) is $1.94 compared to the last year’s EPS of $2.38, a projected decline of approximately 18.50%. On the contrary, revenues are expected to be $1.09 billion up 34.60% from the year-ago quarter when the firm reported sales of $807.43 million.
Notably, Generac has suspended its sales in Russia. However, according to the company’s press release, this shouldn’t be a serious problem: “Sales in Russia comprise less than 1% of Generac’s total revenue, and the impact on the Company’s financial results is not expected to be material.”
Turning to the core argument, the valuation of GNRC stock. The 1-year target estimate of $445.12 on Yahoo Finance is very optimistic. GNRC stock has a price-to-earnings (P/E) generally accepted accounting principles (GAAP) of 22.57, a price-to-sales (P/S) of 2.93, and a price-to-cash flow of 19.63.
All these key financial ratios are at a considerable premium compared to the Industrials Sector’s median values. In a year when valuation in the stock market will be a dominant theme, Generac shares face a dilemma hard to solve. The company presents strong financial performance but the stock is expensive. Therefore, avoid GNRC stock now due to its lofty price.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.