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Why Shares of Generac Holdings Jumped More Than 20% in August

By John Bromels – Sep 9, 2020 at 9:15AM

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The rise followed a slew of positive news for the company.

What happened

Shares of backup generator and industrial equipment manufacturer Generac Holdings (GNRC -2.39%) were up 20.8% in August, according to data provided by S&P Global Market Intelligence. That handily beat the S&P 500's 7% increase for the month. Year to date, the company's shares have risen more than 70%. 

So what

Generac cruised higher on three major pieces of good news. 

A man's hand holds a lit Edison-style bulb against a grassy background.

Image source: Getty Images.

The first, unsurprisingly, was a stellar quarterly earnings report. On July 31, Generac reported a 17% year-over-year increase in adjusted earnings per share for the second quarter of 2020, among other positive news. That helped power its shares higher through the first several days of August. With wildfires in California, an active hurricane season in the Atlantic, and a pandemic keeping people home across the country, interest in Generac's backup power solutions was high during the quarter.

On Aug. 6, a bullish analysis from Bank of America's Ross Gilardi caused the stock to pop even higher, although it came down in subsequent days thanks to reports of insider selling at the company. 

Those sellers shouldn't have sold. On Aug. 10, Generac announced it was introducing a whole-home solar backup power storage system, which it says will be the first end-to-end managed battery-powered backup system. 

"Delivering a whole-home experience from battery storage systems is currently a gap in the industry overall," said Generac's CEO Aaron Jagdfeld in a statement. "The keys to achieving this are high-output power, large battery capacity and intelligent load management. PWRcell is the first to deliver this to homeowners and contractors." The market responded by bidding shares up.

Now what

Generac has seen a big run-up in price so far in 2020, and its valuation has risen accordingly. While it seems likely that its products -- particularly its backup power and energy storage products -- will see increased demand as the power grid becomes more decentralized, it's valid to ask whether the stock is getting a bit pricey for an industrial manufacturer. That said, the potential market could be massive, so while it's certainly a risk, bullish investors may want to pull the trigger.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Generac Holdings Stock Quote
Generac Holdings
GNRC
$94.29 (-2.39%) $-2.31
Bank of America Stock Quote
Bank of America
BAC
$33.00 (-4.26%) $-1.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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