Here's Why You Should Avoid Investing in Graco Stock Right Now
Graco Inc. GGG has failed to impress investors with its recent operational performance due to persistent weakness in the Industrial segment. Also, given the company’s extensive international presence, foreign currency headwind is an added uncertainty.
Graco is headquartered in Minneapolis, MN, and was founded in 1926. The company engages in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials.
Business Weakness: Softness in GGG’s sealants and adhesives business within the Industrial segment is worrisome. A decline in demand for the company’s semiconductor, industrial lubrication and process transfer equipment products owing to a weakness in the industrial sector is also hampering the Process segment’s performance. It expects organic net sales to decline in the low single-digits on a constant-currency basis for 2024.
High Costs: Increasing costs pose a threat to the company’s bottom line. In 2023, Graco’s selling, marketing and distribution costs increased 3.9% from the year-ago period. General and administrative expenses jumped 11.5% in the same period. Operating expenses increased 6% in 2023 due to incremental share-based compensation and increased spending on product development. The trend continued in the first six months of 2024, with selling, marketing and distribution costs, and general and administrative expenses increasing 1.3% and 6.9%, respectively, year over year. The metrics, as a percentage of net sales, increased 70 and 90 basis points year over year, respectively.
Forex Woes: Graco has operations in multiple nations. International expansion exposes it to risks arising from unfavorable movement in foreign currencies, geopolitical issues and other headwinds. In the first six months of 2024, foreign currency translation had a negative impact of 2% on the Asia Pacific region’s revenues.
GGG currently carries a Zacks Rank #4 (Sell). In the past year, the stock has gained 14.1% compared with the industry’s 31.5% growth.
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