Shares of lighting and electrical products company Acuity Brands Inc. (AYI, Financial) are down 12.33% since reporting earnings last week.
The company reported its fiscal fourth quarter and full-year 2020 results on Thursday morning, which beat analyst expectations on revenue and earnings.
However, after showing early promise in the morning hours, the company's stock price has since plunged to bring the year-date-decline to 28.64%. This indicates that there could be a lot of room left to run as we enter the final three months of this calendar year.
The Peter Lynch historical median valuation line, which remains above the current price of the stock, also suggests that the shares of Acuity could be undervalued.
Highlights from Q4 results
In the company's most recent quarterly results, earnings fell 14.55% year-over-year to $2.35 per share. This was better than the consensus analyst estimate of $2.03. On the other hand, revenue for the quarter was 5% lower at $891.2 million, but still outperformed the consensus estimate of $828.4 million.
For the full fiscal year results, the company reported EPS of $6.27, which was 24.4% down from fiscal 2019's EPS of $8.29. Acuity's top line was also lower this year, declining 9.4% to $3.3 billion.
The company reported $505 million in total cash from operations, up $10 million from last year, while cash and cash equivalents increased by $100 million to $561 million. The company's total debt stood at $401 million at the end of the quarter.
Valuation
After the latest pullback in the stock price of Acquity, shares of the company now trade at about 6.98 in the price-cash ratio. This is better than valuation multiples of close peers Hubbell Inc. (HUBB, Financial) and Eaton Corp Plc (ETN, Financial), which trade at price-cash ratios of 15.78 and 86.02, respectively.
From the perspective of earnings, Acuity's trailing 12-month price-earnings ratio of 15.89 trumps Hubbell's 19.93 and Eaton's 28.91. Even when we factor in the expected earnings for the next 12 months, Acuity still appears more competitively priced at a forward price-earnings ratio of 13.00 versus Hubbell's 18.35 and Eaton's 21.93 (future earnings predictions based on Wall Street estimates).
From the perspective of long-term growth, Acuity's PEG ratio based on projected earnings growth for the next five years is estimated at around 1.30. On the other hand, Hubbell and Eaton trade at equivalent PEG ratios of 4.08 and 2.73, respectively.
In summary, Acuity's latest pullback in the stock price appears to be massively undervaluing the stock— both when compared to close peers and the Peter Lynch earnings line. Therefore, I think this could be a good opportunity to buy the stock before the next rally begins.
Disclosure: No positions in the stocks mentioned.
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