Why Acuity Brands Stock Is Rated a "Buy With Caution" Before Earnings

by Rob Otman
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Acuity Brands (NYSE: AYI) is a mid cap company that operates within the electrical equipment industry. Its market cap is $8 billion today, and the total one-year return is -24.94% for shareholders.

Acuity Brands stock is underperforming the market. It's beaten down, but it reports earnings soon. So is it a good time to buy? To answer this question, we've turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.

Our system looks at six key metrics...

Earnings-per-Share (EPS) Growth: Acuity Brands reported a recent EPS growth rate of 13.68%. That's below the electrical equipment industry average of 111.38%. That's not a good sign. We like to see companies that have higher earnings growth.

Price-to-Earnings (P/E): The average price-to-earnings ratio of the electrical equipment industry is 46.68. And Acuity Brands’ ratio comes in at 22.78. It's trading at a better value than many of its competitors.

Debt-to-Equity The debt-to-equity ratio for Acuity Brands stock is 21.43%. That's below the electrical equipment industry average of 49.80%. The company is less leveraged.

Free Cash Flow per Share Growth Acuity Brands’ FCF has been higher than that of its competitors over the last year. That's good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.

Profit Margins The profit margin of Acuity Brands comes in at 9.45% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. Acuity Brands’ profit margin is below the electrical equipment average of 10.5%. So that's a negative indicator for investors.

Return on Equity Return on equity gives us a look at the amount of net income returned to shareholders. The ROE for Acuity Brands is 19.35%, and that's above its industry average ROE of 12.83%.

Acuity Brands stock passes four of our six key metrics today. That's why our Investment U Stock Grader rates it as a Buy With Caution.

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Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth.

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