GGG - Graco: Solid Business But Expensive And Non-Resilient

2024-03-23 07:16:26 ET

Summary

• Graco's all-time high stock performance and its substantial outperformance of the S&P500 highlight its market strength, though its current high valuation suggests caution.
• An overview of Graco's diverse business underlines its strategic market positioning and contribution to sustained growth.
• Despite Graco's solid fundamentals, the stock’s high valuation leads to a hold rating, suggesting waiting for a more attractive entry point aligned with its fair value.

Investment Thesis

Graco ( GGG ) is at all-time highs, and even though the dividend yield offered by this company has been and still is very low, due to the price appreciation, GGG has an annualized total return over the last 10 years (~12.85%) that is significantly above the S&P500 index (~8.78%).

In my view, the dividend is safe, given the combination of a relatively small payout from free cash flow and a clean balance sheet. Should there be a reversion to fair value, the company could still provide a total return above the market, considering its solid financial standing and its status as one of the industry leaders.

In this article, we'll see where I believe GGG should be trading close to its fair value, aiming to invest in a good company at a good price. Given the current valuations, I'm rating the stock as a hold and I'll explain why towards the end....

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