In this clip from “The Rank” on Motley Fool Live, recorded on Feb. 7, Motley Fool contributor Jason Hall discusses which stock might be the least best performer and could generate below average market returns, even as its addressable market is getting bigger.
Jason Hall: Generac Holdings ( GNRC -2.65% ). We’re starting off with the stock that, if you look at the numbers over the past five years, has grown revenue 130% compounded annual growth rate. Or, since over the past five years, is growing revenue 130%, has grown earnings-per-share 432%, and has grown operating cash flow of 166%. It’s a profitable business. It’s generating operating leverage and being more profitable. I think most people have probably heard Generac’s name. This is the company that makes generators. It’s right there in the name. You think about a hospital or an industrial site that needs backup power, has to have power, it’s mission-critical, and then you think about all of the power volatility we’ve seen in a lot of the U.S. with an increase in storms, power outages, utility issues, all of the challenges with climate change that have affected utilities. We’ve seen a big growth in residential that actually makes up its big business. So you think, why are you guys ranking this 10th? I think it’s funny too. If you take a look a little bit further into the company’s business and a lot of the bigger trends that they’re participating in. Think again about global warming, how the grid is having to evolve. You think about how more people are looking at off-grid technologies. Power backup is becoming normal. You think about having, instead of a generator, you go to solar and you go with batteries. Instead of being a niche product that people that have the wherewithal to afford with the residents, get it and it’s required for commercial and industrial applications where they are mission-critical. All of a sudden Generac’s entire addressable market is getting bigger. I think all of those things are true. I think there’s also a reality that Generac is a company that’s playing defense right now. Let’s see if I can find it. I think it’s right here. Since 2016, this is how many acquisitions Generac has made. A massive number of those acquisitions are in technologies that compete with its core gas-powered, diesel-powered, natural gas power, propane power generator business, and help get into more renewable and green energy generated things. This is a company that’s having to shift into technologies that are going to be taking market share from us, even as the addressable market is getting bigger. It’s going to have to compete harder to win those deals. It’s not as well-known and established of a name and some of those areas in renewables. That’s why I think Generac is going to be the least best performer of these going forward and I think it could generate below average market returns.
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