Earnings and buybacks draw fresh attention to Acuity (AYI)

Acuity (AYI) is back on investors’ radar after first quarter results showing sales of US$1,143.7 million and net income of US$120.5 million, alongside continued share repurchases under its long running buyback program.

Despite solid first quarter earnings and steady buybacks, Acuity’s recent share price performance has been weak, with a 30 day share price return of a 15.16% decline and a year to date share price return of a 16.41% decline, while longer term total shareholder returns over three and five years remain strongly positive.

If this mix of earnings strength and recent price pressure has you thinking about where else capital might work hard, it could be a good moment to scan fast growing stocks with high insider ownership.

With first quarter earnings, long running buybacks and a share price that has pulled back, the key question now is whether Acuity’s current valuation reflects a discount or if the market is already pricing in future growth.

Price to earnings of 23.2x, is it justified?

Acuity’s current valuation sits on a P/E of 23.2x, which lines up with a share price of US$312.07 and screens as inexpensive against several reference points.

The P/E multiple compares the company’s share price to its earnings per share, so it is a quick way of seeing how much investors are paying for each dollar of earnings. For a business focused on lighting, controls and building management systems, earnings-based measures are often a primary yardstick because cash generation and profitability tend to matter more than asset heavy book values.

What stands out is how the current 23.2x P/E stacks up. It is lower than the US Electrical industry average of 32.4x, and also sits below the peer group average of 45.1x, which suggests the market is applying a lower earnings multiple than many comparable names. It is also slightly beneath the estimated fair P/E of 24.5x, hinting at some room for the multiple to move closer to that level if sentiment or expectations shift.

Result: Price-to-earnings of 23.2x (UNDERVALUED)

However, the recent 16.4% year to date share price decline, along with annual revenue and net income growth rates that are not especially high, could limit how quickly sentiment improves.

Another View: Cash Flows Point To More Upside

While the P/E of 23.2x suggests Acuity looks inexpensive against peers, our DCF model tells a similar story from a different angle. On that basis, the current share price of US$312.07 sits about 16.6% below an estimated future cash flow value of US$374.12. For you, the question is whether that gap fairly reflects the risks or leaves room for a reassessment.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Acuity for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 882 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Acuity Narrative

If this view does not quite fit how you see Acuity, or you would rather lean on your own work, you can review the same data, stress test different assumptions and build a version that reflects your outlook in just a few minutes with Do it your way.

A great starting point for your Acuity research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

Before you wrap up your research on Acuity, give yourself a broader view of the market by checking stocks that fit different themes and return profiles.

• Target reliable income opportunities by scanning these 13 dividend stocks with yields > 3% that might suit a yield focused portfolio.
• Spot potential growth stories early by reviewing these 24 AI penny stocks at the intersection of technology and artificial intelligence.
• Position ahead of emerging trends by checking these 19 cryptocurrency and blockchain stocks tied to cryptocurrencies and blockchain technology.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.