2 Reasons to Watch AYI and 1 to Stay Cautious

Over the last six months, Acuity Brands’s shares have sunk to $274.61, producing a disappointing 16.9% loss - a stark contrast to the S&P 500’s 3.1% gain. This might have investors contemplating their next move.

Given the weaker price action, is now an opportune time to buy AYI? Find out in our full research report, it’s free.

Why Does Acuity Brands Spark Debate?

One of the pioneers of smart lights, Acuity (NYSE:AYI) designs and manufactures light fixtures and building management systems used in various industries.

Two Positive Attributes:

1. Elite Gross Margin Powers Best-In-Class Business Model

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Acuity Brands has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 44.8% gross margin over the last five years. That means Acuity Brands only paid its suppliers $55.19 for every $100 in revenue.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Acuity Brands’s EPS grew at 18.1% compounded annual growth rate over the last five years, higher than its 6.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Acuity Brands grew its sales at a mediocre 6.7% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Acuity Brands.

Final Judgment

Acuity Brands’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 13.7× forward P/E (or $274.61 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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