The stocks of companies that are experiencing demand for their products and services exceeding supply can make great investments. Economics 101 tells us that such businesses have strong pricing power. Of course, investors need to dig deeper to determine if it looks like the rising demand is sustainable. Moreover, investors will want to know if such a company has a financially responsible plan to ramp up production fast enough to better meet demand before losing too many customers or potential customers.

Two companies that have recently reported that they can't keep up with demand for at least one of their main products and/or services, are increasing capacity, and have said the notable boost in recent demand should continue for many years are photomask maker Photronics (NASDAQ:PLAB) and backup power specialist Generac Holdings (NYSE:GNRC).

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Two companies with surging demand for their products


Market Cap

Forward P/E

Wall Street's Projected Average Annual EPS Growth Over Next 5 Years

YTD 2019/Since Generac's 2010 IPO* Returns

Photronics $1.1 billion 15.2 10% 64.7%/338%
Generac Holdings $6.2 billion 18.8 8% 99.3%/1,056%*
S&P 500 -- -- -- 28.9%/268%

Data sources: Yahoo! Finance and P/E = price-to-earnings ratio. EPS = earnings per share. YTD = year to date. *Generac's initial public offering (IPO) was in February 2010, so this period is slightly shy of 10 years. Data as of Dec. 13, 2019.


Photronics bills itself as the "worldwide leader in photomask products and services...for integrated circuits and flat panel displays." Its photomasks, which are quartz or glass plates that have microscopic images of electronic circuits, are used as guides to manufacture integrated circuits (IC) and flat-panel displays (FPD). So the Connecticut-based company's products are used to produce many electronic items, such as mobile devices, PCs, and TVs.

Here's one of several demand-related comments CEO Peter Kirlin made on Photronics' earnings call last week following the company's release of its fiscal fourth-quarter 2019 earnings, which sent the stock skyrocketing:

So we have not definitively made up our minds exactly how much to invest [in capacity expansion] and when. But our global factories sold out. We have no more capacity. We're turning business away from multiple customers.

Wall Street is projecting Photronics will grow earnings per share (EPS) a whopping 95.5% this year and then just 10% annually over the next five years. Investors shouldn't place much weight on the five-year forecast, which is based on just two analysts' estimates. Moreover, analysts have recently been significantly underestimating the company's ability to increase earnings. In three of the last four quarters, Photronics beat the consensus earnings estimate -- and two of these were crushes, with the company exceeding the expectation by 60% and 117%. In the one quarter that it didn't surpass expectations, it met them.

The semiconductor space tends to be rather cyclical, so Photronics stock isn't suitable for more conservative investors.

Dark cityscape with Blackout written above in blue.

Image source: Getty Images.


Generac, based in Wisconsin, makes backup power solutions. It's the leading manufacturer of home backup generators. The company's business got a big boost over the last couple months from Northern California's several massive waves of pre-emptive blackouts. These historic events were due to electric utility PG&E (NYSE:PCG) shutting off power during dry and windy weather conditions to help prevent its equipment from starting additional wildfires.

Here's what Generac CEO Aaron Jagdfeld had to say on the company's third-quarter earnings call about demand for California in-home consultations, the first step in the sales process for residential generators:

To answer the question on whether we're able to keep up, the actual answer is no, we are inundated right now. We're adding distribution...but yet, just on-boarding those dealers and developing them it takes time. ... So there is a backlog in some cases, depending on which region you're in...[I]t could be a backlog of a couple of weeks.

Due to robust demand for its residential generators, Generac management increased its full-year 2019 guidance when it reported its third-quarter results. It now expects revenue to grow 8% to 9%, up from 6% to 7%, and projects an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 20.5%, up from 20%.

Wall Street is looking for Generac to grow EPS at an average annual pace of 8% over the next five years. The company seems to have a great chance at growing earnings faster. It's beat the consensus earnings estimate in all three reported quarters of 2019. Moreover, California's preemptive blackouts are likely to remain the new normal for many years, and utilities in other states could follow suit. The effects of underinvestment in the electrical grid in some regions and climate change are far from quick-fix issues.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.