Acuity Brands trades at $360.33 and has moved in lockstep with the market. Its shares have returned 17.9% over the last six months while the S&P 500 has gained 13%.

Is AYI a buy right now? 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 Things to Like:

1. Encouraging Short-Term Revenue Growth

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Acuity Brands’s annualized revenue growth of 9.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

2. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Acuity Brands’s margin expanded by 8.6 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Acuity Brands’s free cash flow margin for the trailing 12 months was 13.9%.

One Reason to Be Careful:

New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

Unfortunately, Acuity Brands’s ROIC averaged 3 percentage point decreases each year over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Final Judgment

Acuity Brands’s positive characteristics outweigh the negatives. At $360.33 per share (or 16.8× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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