בס״ד

Stock Market Degenerates – You Know Who You Are… (GNRC)

Posted on July 1, 2021

 

We’re going back now, friends – WAY BACK – to our old friends at Generac Holdings Inc. (NYSE:GNRC), a company that, for some reason, people consider a TECH stock.

It AINT!

Generac sells generators, large and small, for every type of customer.

And they’re headquartered in Wisconsin.

Good old Wisconsin, where folks are wholesome and honest.

For those who are paying attention, we’ve already made two huge swipes with GNRC, once back in November of last year for a stupendously quick 575%.

And a second just two weeks ago for a gain of 196%.

In other words, this guy is a money-printing machine, and the G-d of Abraham, Isaac and Jacob has apparently willed it to be so.

At least until now.

So will it continue….?

That’s the question we’re intending to answer.

And if we have to dig through reruns of high school television dramas from the 1970’s then that’s exactly what we’ll do.

And you can’t stop us.

Now to the fundamentals.

  • GNRC runs with a ridiculous P/E of 57.68,
  • Pays NO dividend, and
  • Sports a paunchy Price to Book ratio of 16.32.
  • And in the last six months, insiders, who know the company’s workings best, sold roughly 10% of their holdings as the stock made a 90% run higher (see chart, below).  That’s what you call a $34 million heist.

Now, the company is making money, that’s for certain.

But does it justify today’s stock price?

We’d say no.

And the charts would concur.

Here’s the daily –

Technically, we have –

  1. An RSI overbought indication (in green) two weeks ago, directly following an unbelievable six week, 44% rise.
  2. MACD now rolling lower, as well.  When both are trending southward, we’ll see increased selling momentum.
  3. The rise to the current highs left three large gaps to be filled (in red), and
  4. A bearish engulfing pattern just a week ago is still operative.  Unless we see a strong break toward 420, we’ll consider the current action to be a topping formation.

Now to the weekly, where we see –

The weekly chart presents –

  1. Divergence from both the RSI and MACD indicators (green arrows), particularly after
  2. The third weekly overbought read in a year (circled, in red).
  3. Clearly, price has gotten so far from its longer term moving averages (in blue) that a Pfizer-like snap-back is now inevitable.

All of which leads us to propose the following –

A Jew and His Gold recommends you consider selling the GNRC August 20th 420/430 CALL spread* for a credit of $3.10 (22.20/19.10) and buying the GNRC 390/370 PUT spread** for $6.30 (13.30/7.00).  Total debit on the trade is $3.20.

[*Sell the 420 CALL and buy the 430 CALL.   **Buy the 390 PUT and sell the 370.]

Rationale: the trade pays handsomely for a win – maximum profit is $16.80 on just $3.20 laid out.

At the same time, our maximum win arrives after a correction of exactly 10% from the current price of $415.15 – not a long way down.

Breakeven is situated at $386.80.

Maximum loss is $13.20 (difference between CALL strikes plus initial debit), and takes effect only if GNRC sails to new highs above 430.

The G-d of Israel will decide.

Many happy returns,

Matt McAbby

 

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