What Is Acuity Brands, Inc.'s (NYSE:AYI) Share Price Doing?
While Acuity Brands, Inc. (NYSE:AYI) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Acuity Brands’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Acuity Brands
Is Acuity Brands still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Acuity Brands’s ratio of 17.53x is trading slightly below its industry peers’ ratio of 19.99x, which means if you buy Acuity Brands today, you’d be paying a decent price for it. And if you believe that Acuity Brands should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Acuity Brands’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Acuity Brands generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 16% over the next couple of years, the outlook is positive for Acuity Brands. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? AYI’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at AYI? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on AYI, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for AYI, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Diving deeper into the forecasts for Acuity Brands mentioned earlier will help you understand how analysts view the stock going forward. At Simply Wall St, we have the analysts estimates which you can view by clicking here.
If you are no longer interested in Acuity Brands, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.
