Over the last six months, Acuity Brands’s shares have sunk to $315.36, producing a disappointing 5.1% loss - a stark contrast to the S&P 500’s 5.4% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Acuity Brands, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Acuity Brands Not Exciting?
Even with the cheaper entry price, we're cautious about Acuity Brands. Here are two reasons why we avoid AYI and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Acuity Brands’s sales grew at a sluggish 4.3% compounded annual growth rate over the last five years. This was below our standard for the industrials sector. 
2. Core Business Falling Behind as Demand Declines
Investors interested in Electrical Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into Acuity Brands’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Acuity Brands’s organic revenue averaged 1.8% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Acuity Brands might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
Final Judgment
Acuity Brands’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 17× forward P/E (or $315.36 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Acuity Brands
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