GRACO INC. (GGG): what the price requires

At today's price, GRACO INC. (GGG) is priced for +17.6% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/GGG

Headline

FieldValue
TickerGGG
CompanyGRACO INC.
Current price$73.82/sh
CompositionContractor 48% / Industrial 45% / Expansion Markets 8%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed22.4%
Operating margin today27.7%
Margin compression implied-5.3pp
Implied growth17.6%
Multiple paid19x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.6% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.8pp.

How unusual the bet is: within-range

ReferenceValue
vs own history+0.18σ
cohort percentile (of 225 peers)41
sustained it ~5 years at this level41%
implied end-window share0%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset2.20x5expensive
Earnings1.74x5expensive
Relative1.83x5expensive
Growth1.02x3expensive

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.2%); the inversion above states its own rate.

Per-Model Detail (n=18)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$76.290.97xyesFCF base $0.6B, growth 5% (input: historical growth), terminal g 4.0%, WACC 9.2%, 5yr projection
DCF Exit MultipleGrowth$72.721.02xyesExit EV/EBITDA: 16.1x / 18.1x / 20.1x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$57.541.28xyesP/E 18x (static sector reference · 2026-04), scenarios: 15.2x / 18.0x / 20.8x (bear / base = reference held flat / bull), EV/EBITDA 13.84x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$33.152.23xyesBV/sh $16.29, ROE (TTM) 18.8%, ke 9.3%
Two-Stage Excess ReturnAsset$46.731.58xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$55.591.33xyesRev $2.2B, growth 5% (input: historical growth; tapered), Terminal P/S: 4.7x / 5.5x / 6.4x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$36.722.01xyesEPS $3.06, growth 9% (input: historical EPS growth), PEG=2.73 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$36.322.03xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.59B × (1−15%) / WACC 9.2% → EPV (no growth)
Residual IncomeAsset$45.951.61xyesBV $16.29 + 5yr PV of (ROE (TTM) 18.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$33.492.20xyes√(22.5 × EPS $3.06 × BVPS $16.29) — Graham's conservative floor
EV/EBITDA RelativeRelative$50.211.47xyesEBITDA $0.65B × sector EV/EBITDA 12.0x
FCF YieldEarnings$44.621.65xyesFCF $631.2M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$42.371.74xyesSBC-adj FCF $0.60B (FCF $0.63B − SBC $0.03B) capitalized at Kₑ
Ben Graham FormulaEarnings$66.971.10xyesEPS $3.06 × (8.5 + 2×8.8%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$10.007.38xyesBV $16.29 × (ROIC 5.7% / WACC 9.2%)
P/Sales SectorRelative$33.392.21xyesRevenue $2.25B × sector P/S 2.5x
PEG Fair ValueRelative$40.421.83xyesEPS $3.06 × (PEG 1.5 × growth 8.8% (input: historical EPS growth)) → PE 13.2x
Earnings YieldEarnings$33.082.23xyesEPS $3.06 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net cash$684.4m
Net debt / NOPAT (after-tax)-1.34x (net cash)
Net debt / operating income (pre-tax)-1.13x (net cash)
Interest coverage207.2x
Share count CAGR (buyback)-0.9%
Burning cashno

Bullet Takeaways

At $76.02 the market is pricing about 20 times operating income, implying operating growth of roughly 19% a year for five years. The rate is within what Graco has recently delivered; the stretch is in how long it must persist, not how fast.

The fundamentals are unusually clean: a 27.5% trailing operating margin, net cash on the balance sheet, interest covered hundreds of times over, and a long record of returning cash. Only the growth-DCF family reaches the price, which frames this as a quality-and-durability premium rather than a cheap stock.

The near-term reality is softer than the multiple assumes. Q1 2026 organic sales fell 6% with acquisitions and currency masking the decline, EPS slipped, and the semiconductor-heavy Expansion Markets segment lapped a prior surge. The bet is that the moat keeps compounding through a soft patch.

Bull Case

The market is pricing Graco as a durable compounder, and unlike most stocks where that framing is a stretch, here the fundamentals largely cooperate. The price implies operating growth of about 19% a year for five years, and the notable thing is that the rate is within what Graco has recently delivered. The market is not betting on the company suddenly becoming something it is not; it is betting that a proven performer keeps performing. What the fundamentals actually show is a business that earns a 27.5% trailing operating margin, sits on a net cash balance sheet, covers interest hundreds of times over, and has been quietly shrinking its share count. That is the profile of a high-quality industrial, and high-quality industrials are exactly the kind of business where a forward growth premium can be earned rather than imagined.

The segment structure supports the durability case. Graco reorganized into three reportable segments effective January 1, 2025, Contractor, Industrial, and Expansion Markets (FY2025 10-K, accession 0000042888-26-000081), spreading the business across professional paint contractors, factory fluid-handling, and higher-growth adjacencies. The Industrial segment alone is about 45% of sales and the filing notes its operating margin rate increased on the year, helped by acquired operations and favorable currency (accession 0000042888-26-000081). The company is explicit that its operating disciplines and continuous improvement "are leveraged to integrate and expand the capabilities of acquired businesses" (accession 0000042888-26-000081), which is the engine behind the total-growth-above-organic story: bolt-on acquisitions, run through Graco's margin machine.

The near-term order signal is the encouraging part beneath a soft revenue quarter. Even as Q1 2026 organic sales dipped, management cited a strong April backlog build and reported bookings up at least 20% in each region of the Expansion Markets segment. The semiconductor business inside that segment was lapping a 51% prior-year surge, so the organic decline there is a comparison artifact, not a demand collapse. Against the peer cohort of Watts Water, Curtiss-Wright, Pentair, Xylem, and Donaldson, Graco stands out for the combination of margin, balance-sheet strength, and a repeatable acquire-and-improve model. The price asks for durable compounding; the business has the structure and the discipline to deliver it.

Bear Case

The bear case starts with how management is funding growth, because the recent results expose a dependence on acquisitions that the headline numbers paper over. Q1 2026 total revenue rose 2%, but organic sales fell 6%; acquisitions added 5 points and currency another 3. In other words, the underlying business shrank, and the growth line was assembled from deals and exchange rates. That is a legitimate strategy for a disciplined acquirer, but it raises the bar on capital allocation: every point of reported growth that comes from buying revenue rather than generating it puts more weight on integration and on paying the right price. When organic demand softens and the company leans harder on M&A to keep the growth optics intact, a holder should ask whether the deals are creating value or just filling a gap.

The second problem is that the price assumes the compounding continues uninterrupted, and the latest quarter argues it is interrupting. Net earnings fell 5% to $119 million and adjusted EPS dropped 6% to $0.66. Gross margin contracted about 60 basis points as pricing actions failed to fully offset higher product costs, lower volume, acquired-operation dilution, and $7 million of incremental tariffs. The price embeds roughly 19% annual operating growth for five years; the company just printed declining organic sales and falling earnings. History says only about 38% of comparable performers sustain that pace for even five years, and a quarter of organic contraction is not the start most of that 38% had. If the soft patch lasts, the gap between a 19%-growth price and a shrinking-organic reality closes from the wrong direction.

The third issue is concentration and cyclicality inside the growth engine. The Expansion Markets segment, the part carrying the highest-growth narrative, is heavily exposed to semiconductors, which just lapped a 51% surge and went into organic decline. That is the nature of the segment: when it runs it flatters the whole company, and when it cools it drags. The bookings strength is real, but bookings can be deferred, and a 20%-plus order build has to convert into shipments to matter. The valuation lenses outside growth-DCF all agree the price is full, asset-based methods land in the $33 to $47 range and earnings-power methods near $33 to $45, well below the $76 (June 27, 2026) quote. The net cash balance sheet means this is not a distress story, but it does mean the entire premium rests on the durability of a moat during a stretch when the organic numbers are pointing the other way.

Valuation

The inversion is unusually benign for a name trading at a premium. At $76.02 the market is paying about 20 times company-wide operating income, which at a 9.7% cost of capital implies operating growth of roughly 19% a year for five years. The key context is that this rate is within what Graco has recently delivered, so the stretch is in the duration, how long the pace must persist, rather than in the rate itself. The priced-in assumption reads as within range, the most comfortable label in this set: about 38% of comparable performers have sustained that pace for five years, and Graco's own history puts it in the conversation.

The model X-ray shows the signature of a quality compounder: only the growth-DCF family reaches the price, while everything else says richly valued. The growth frames land right at the quote (DCF perpetual growth near $76, DCF exit multiple near $74, discounted future market cap near $57). The asset-based frames land lower (two-stage excess return near $47, residual income near $46, simple excess return near $33, ROIC-justified book near $10). Earnings-power frames sit near $33 to $45 (earnings-power value near $36, FCF yield near $45, Ben Graham formula near $67). Peer-relative methods land near $33 to $58. The pattern, static methods below the price and only forward growth reaching it, is precisely what a moat premium looks like.

The balance sheet removes the distress question entirely. Graco holds net cash of about $684 million against roughly $619 million of trailing operating income, with interest covered around 205 times. There is no leverage risk; the company can fund acquisitions and buybacks from internal cash. The recent quarter, organic sales down 6% and EPS down 6% but with bookings up over 20% by region and a strong April backlog, is genuinely mixed and material to the forward view. The reasonable conclusion is that Graco is an excellent business priced for the durability it has historically shown, with the near-term organic softness as the live test of whether that durability holds. You are paying a fair price for quality, not finding a bargain.

Catalysts

The Q1 2026 report on April 23 was the most recent catalyst and a mixed one. Revenue of $540 million rose 2%, but organic sales fell 6% (acquisitions added 5 points, currency 3). Net earnings of $119 million were down 5%, and adjusted EPS of $0.66 was down 6%. Gross margin fell about 60 basis points as pricing only partly offset higher costs, lower volume, acquired-operation dilution, and $7 million of incremental tariffs. Management maintained its full-year outlook for low-single-digit organic growth and mid-single-digit total growth including acquisitions, citing strong Q1 and April backlog. (Sources: The Motley Fool Q1 2026 transcript; Investing.com Q1 2026 slides; Kavout earnings analysis.)

The key forward signals are order conversion and the semiconductor cycle. Expansion Markets organic revenue fell 5%, driven by the semiconductor business lapping a prior 51% surge, but bookings rose at least 20% in each region, so the catalyst to watch is whether that booking strength converts into shipped revenue in the coming quarters. Analyst sentiment is cautious, with a largely Hold consensus and a price target near $99. Because the price assumes durable compounding, the next prints matter most for direction: a return to organic growth and conversion of the backlog would validate the premium, while continued organic contraction would pressure a stock that only the growth models can justify. (Sources: Investing.com; stockanalysis.com; The Motley Fool transcript.)

Peer Cohorts (Per Segment, With Filing Citations)

Contractor (reported)

Industrial (reported)

Expansion Markets (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

View the full interactive GGG report on boothcheck