Can Generac ($GNRC) generate some profits? Here’s your trade. (December 23, 2020)
GNRC
I want to look at Generac ( NYSE: GNRC ) here, they make generators. We were going to get one this year for our house but for various reasons, we decided not to. So we are going to wait, hopefully, the forest fires aren’t going to take our house out before we can get the water pump that will power on our Generac ( NYSE: GNRC ) generator when Gavin Newsom shuts off all the power. It’s awesome out here in the land of milk and honey.
This is a stock that is doing really well. The fundamentals on the company are really, really strong. This company is making money hand over fist; that’s probably an exaggeration, but let’s just say they are doing really well. They’ve got a 3-5 year growth rate in terms of earnings at 17 percent, which doesn’t seem like much but consider what these guys do, they don’t make rocket ships.
Their margins are improving; over the last 3 quarters, their year over year after-tax margins have gone from 11.6 to 16.2 to 19 percent. That’s monster growth in the thing that matters the most. And over the last 3 quarters their same quarter sales, that’s revenue, that’s the stuff that you can’t massage, have gone from 1 percent up another 1 percent, then up 17 percent. But it gets better, there’s more, you get a set of Ginsu knives with this (no, not really).
On March 31, in that quarter they lost 4 percent in earnings versus the same quarter the prior year. The next quarter, up 17 percent; they went from $120.00 up to $140.00. And then in the last quarter here, in September, they went up 45 percent from $143.00 up to $208.00. Now, we are just looking at the chart here but what I am trying to impress upon you is, the fundamentals totally support this move. But wait again, there’s more, this is a weekly chart, a nice uptrend. The stock has been in this sideways consolidation for a while. It’s just not really pulling back that much.
And so in my view the way you do this is, you want to get into it. I wouldn’t buy it here as a trade. I would say if it runs up above yesterday’s intraday high, we’ll call it 232.00, if this runs up above 232.00 then it will probably be a pretty good trade. But remember, they make generators; it’s not a biotech stock. I would prefer to get it closer to the 50-day moving average. If you could get it closer to there then I think this is a better trade. You will get a lower cost basis in it, the stock is still trading in a bit of a box.
What we want to see, ultimately though is, I like this volume here on the move higher. It stalled basically where it did before but we want to see volume dry up. I want to see volume, if the stock pulls back a bit, you want to see low volume, lower than 836,000 that it typically trades. You want to see the stock pulling back to 20 or so, light volume, and then you feel better about buying this closer to the 50-day moving average where it actually has worked.
You see a little shakeout here, the stock pulls back. It hadn’t been below the 50 in a while and then we get several days where it did pull back. And then immediately came back up and then tested the 50 and held. So this was kind of a shakeout, runs up again, volume was about average. A pullback on the third day on heavy volume and then a rejection of the pullback.
I am just kind of giving you the play-by-play here, I don’t do it as well as Tony Romo, who is awesome, but I think it’s all right. Again, just let this thing pull back, light volume, and that’s when you make your move.
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