In a short report on Generac Holdings Inc. GNRC that was issued in June, Spruce Point Capital Management speculated the company might be overvalued.
A popular stock, Generac has been a top performer over the past 10 years with returns of more than 1,000% during that time frame.
Spruce Point claimed in its research that Generac's recent acquisition frenzy was the result of the company trying to veer away from problems in its main generator business.
In Generac’s earnings call today, CEO Aaron Jagdfeld may have alluded to the shift away from its core generator business by saying, "Installation capacity for home standby generators continued to grow but still lagged our production output during the third quarter," which may confirm what Spruce Point called out in June.
Spruce Point also said Generac is investing in unproven and highly speculative clean energy products and services that ramp up risk for investors.
The firm also included a target valuation range for Generac of between $110 and $132 per share in its June report.
What Happened: Generac shares are trading lower by 25% to around the $110 mark intraday Wednesday after the company reported preliminary third-quarter EPS results are lower year over year. The company also lowered its FY22 net sales growth guidance and net income margin.
For 2022, the company cut its sales growth outlook to 22% to 24% from 36% to 40% and its net income margin guidance to 9% to 10% from 13% to 14%.
Spruce Point said in its report it had discovered proof of a "sham revenue transaction" by Off Grid Energy, a recent Generac acquisition.
The short report also claimed Generac was associated with Pink Energy, which Spruce Point believes is under investigation by the FTC for "misleading customers," and that Generac had engaged in a "shady" transaction with the solar energy firm Sunnova Energy International Inc NOVA.
Why It Matters: After Generac's sharp decline on Wednesday, Spruce Point tweeted: “When all of Wall Street got it wrong #Generac $GNRC: 20 Buys, 4 Holds, 0 Sells >> Oh wait Spruce Point said "Strong Sell", but that doesn't count.”
Spruce Point has released short reports on Skechers USA Inc SKX, Figs Inc FIGS, Broadridge Financial Solutions, Inc. BR, MGP Ingredients, Inc. MGPI, and WD-40 Company WDFC.
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