GRACO INC (GGG) Stock Analysis
GRACO INC (GGG) Stock Analysis
Overall Grade: F (Concerning)
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GRACO INC faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 19.7% | Solid returns |
| FCF Margin | 28.5% | Strong cash generation |
| Debt/Equity | 0.0x | Conservative leverage |
Investment Thesis: Strong return on invested capital of 19.7% suggests durable competitive advantages and efficient capital allocation.
What is GRACO INC's Profitability and ROIC?
GRACO INC generates strong returns on invested capital at 19.7%, indicating efficient capital allocation and competitive advantages. Gross margin of 52.5% with operating margin at 27.9% reflects the company's strong market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 19.7% | Good | Strong capital efficiency |
| Return on Equity (ROE) | 20.5% | Excellent | Efficient use of shareholder equity |
| Gross Margin | 52.5% | Excellent | Strong pricing power |
| Operating Margin | 27.9% | Excellent | Efficient operations |
How Strong is GRACO INC's Cash Flow Quality?
GRACO INC generated $637.9M in free cash flow over the trailing twelve months, representing a 28.5% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.3x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 28.5% | Excellent | Excellent cash conversion |
| Free Cash Flow (TTM) | $637.9M | Good | Positive cash generation |
| OCF/Net Income | 1.3x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is GRACO INC's Financial Health?
GRACO INC maintains a net cash position of $622.5M, providing significant financial flexibility.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Debt to Equity | 0.0x | Excellent | Conservative capital structure |
| Net Cash Position | $622.5M | Excellent | Net cash positive |
Is GRACO INC Stock Overvalued or Undervalued?
GRACO INC trades at a P/E of 26.6x, representing a premium to the sector median of N/A.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 26.6x | Adequate | Premium valuation |
| EV/Sales | -0.3x | Excellent | Attractive revenue multiple |
| Dividend Yield | 1.3% | Adequate | Growth focus over income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 19.7% | Top 25% | 2.5x above |
| Free Cash Flow Margin | 28.5% | Top 5% | 5.3x above |
| Gross Margin | 52.5% | Top 25% | 1.6x above |
| Operating Margin | 27.9% | Top 5% | 3.4x above |
| Return on Equity (ROE) | 20.5% | Top 25% | 2.3x above |
| P/E Ratio | 26.6x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 19.7% (Good - Top 25% of sector (median: 8.0%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 28.5% (Excellent - Top 5% of sector (median: 5.4%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 52.5% (Excellent - Top 25% of sector (median: 33.4%))
Debt to Equity Ratio
Total debt divided by shareholders' equity. Lower ratios indicate more conservative financing and reduced financial risk.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 0.3x | Conservative leverage, strong balance sheet |
| Good | 0.3x - 0.7x | Moderate leverage, healthy financial position |
| Adequate | 0.7x - 1.5x | Elevated leverage, monitor closely |
| Warning | 1.5x - 3.0x | High leverage, increased financial risk |
| Red flag | > 3.0x | Excessive leverage, potential distress risk |
Current: 0.1% (Excellent)
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 26.6x (Adequate)
Frequently Asked Questions
Q: What is GRACO INC's Return on Invested Capital (ROIC)?
GRACO INC (GGG) has a trailing twelve-month Return on Invested Capital (ROIC) of 19.7%. This compares above the sector median of 8.0%. An ROIC between 12-20% indicates solid capital allocation and sustainable competitive position.
Q: What is GRACO INC's Free Cash Flow Margin?
GRACO INC (GGG) has a free cash flow margin of 28.5%, generating $637.9 million in free cash flow over the trailing twelve months. A FCF margin above 20% indicates excellent cash conversion and a high-quality business model.
Q: Is GRACO INC stock overvalued or undervalued?
GRACO INC (GGG) trades at a P/E ratio of 26.6x, which is above the sector median of N/A. The EV/Sales multiple is -0.3x.
Q: Does GRACO INC pay a dividend?
GRACO INC (GGG) currently pays a dividend yield of 1.3%. Including share buybacks, the total shareholder yield is 1.3%. The relatively low yield suggests the company prioritizes growth reinvestment over income distribution.
Q: What is GRACO INC's revenue and earnings growth?
GRACO INC (GGG) grew revenue by 5.8% year-over-year. Earnings per share increased by 9.2% compared to the prior year. Modest growth indicates a mature business with stable demand.
Q: Is GRACO INC buying back stock?
GRACO INC (GGG) repurchased $423.1 million of stock over the trailing twelve months. This represents a buyback yield of 3.0%.
Q: How does GRACO INC compare to competitors in Industrials?
Compared to other companies in Industrials, GRACO INC (GGG) shows: ROIC of 19.7% is above the sector median of 8.0% (Top 15%). FCF margin of 28.5% exceeds the sector median of 5.4% (Top 0% of sector). Gross margin at 52.5% is 19.1 percentage points higher than sector peers. These rankings are based on MetricDuck's analysis of all Industrials companies with available SEC filings.
Q: What warning signs should I watch for with GRACO INC?
GRACO INC (GGG) shows no major financial warning signs based on current metrics. However, investors should always monitor: 1) Margin compression trends, 2) Cash flow consistency, 3) Debt levels relative to cash generation, and 4) Changes in competitive positioning.
Data Source: Data sourced from 10-Q filed 2025-10-22. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.