Investment Thesis
Graco demonstrates exceptional operational profitability with 52% gross margins and 21.9% net margins, coupled with fortress-like financial health (zero debt, $712M cash, 3.56x current ratio). However, the fundamentally weak returns on equity (4.3%) and assets (3.6%)—combined with flat net income growth despite 5.8% revenue expansion—signal serious capital inefficiency that undermines investment appeal despite strong free cash flow generation.
Strengths
- Exceptional operational margins (52% gross, 25.5% operating, 21.9% net) demonstrate industry-leading cost control
- Financial fortress with zero debt, $712.2M cash, and excellent liquidity (3.56x current ratio, 2.63x quick ratio)
- Strong free cash flow generation at $108.1M annually with 20% FCF margin, providing capital flexibility
Risks
- Critically low ROE (4.3%) and ROA (3.6%) indicate severe capital inefficiency; company is generating returns far below cost of capital despite high margins
- Net income stagnant (+0.0% YoY) while revenue grew 5.8%, signaling margin compression or operational headwinds; EPS growth driven by buybacks masking weak earnings
- Modest 5.8% revenue growth in mature pumps/equipment sector with unclear organic growth catalysts; excess $712M cash suggests management lacks compelling deployment opportunities
Key Metrics to Watch
- Return on Equity trajectory—must improve above 8%+ to justify equity capital employed
- Net income growth rate and operating margin trends—critical to confirm no further margin compression
- Management capital allocation decisions—how excess cash is deployed (acquisitions, dividends, buybacks) will determine whether value creation improves
Financial Metrics
Revenue
540.1M
Net Income
118.5M
EPS (Diluted)
$0.70
Free Cash Flow
108.1M
Total Assets
3.3B
Cash
712.2M
Profitability Ratios
Gross Margin
52.0%
Operating Margin
25.5%
Net Margin
21.9%
ROE
4.3%
ROA
3.6%
FCF Margin
20.0%
Balance Sheet & Liquidity
Current Ratio
3.56x
Quick Ratio
2.63x
Debt/Equity
0.00x
Debt/Assets
0.0%
Interest Coverage
67.74x
Long-term Debt
0.0
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-04-29T13:54:34.386325 |
Data as of: 2026-03-27 |
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