Generac scores 70 for management and 46 for moat. The management score rests on a return on invested capital of 5.3% and a gross margin of 38.3% — figures that describe a business earning a respectable return on what it employs. Debt sits at 0.51x equity. The moderate moat and strong management are not the same judgement, and the gap between them is where the argument about this business sits.
The price anchors are built on deliberately conservative assumptions. Growth is modelled at 11.1% a year, the rate measured from the filings. The exit multiple assumed is 22.2x. That produces an intrinsic value of $68.40, a 10-CAP price of $72.33 and a payback time price of $95.71, with the value zone set at the highest of the three, $95.71. Today's price of $207.91 is 117% above it.
The price is above the value zone and the business scores 46 for moat and 70 for management. Neither test argues for paying up here.
| Price | $207.91 |
| Market cap | $12.2B |
| P/E ratio | 47.9x |
| Return on invested capital | 5.3% |
| Gross margin | 38.3% |
| Debt to equity | 0.51x |
| Free cash flow yield | 3.4% |
| Growth rate used | 11.1% |
| Growth rate measured | 11.0% |
| Exit multiple assumed | 22.2x |
| Company | Moat | Buy price |
| Lennox International (LII) | 65 | $252.44 |
| Graco Inc (GGG) | 81 | $39.83 |
| Donaldson Co Inc (DCI) | 75 | $40.40 |
| Pentair (PNR) | 69 | $46.42 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Generac rather than accepting ours.