By Mitchell Clark, B.Comm.
There’s one company that is likely to have a very good year in 2014.
As my readers will know, the most valuable information going as an equity investor (businessperson) is what an enterprise says about its business conditions. And according to this company, business conditions are looking up.
Acuity Brands, Inc. (NYSE:AYI) is a well-known lighting company out of Atlanta that serves mostly commercial and industrial markets. The company operates a number of brands, selling through independent agents, electrical wholesalers, and sales reps.
Total sales for the company’s fiscal second quarter (ended February 28, 2014) grew a solid 12% over the comparable quarter to $546 million.
Earnings grew substantially, up 32% in the quarter to $32.7 million. Earnings per share also grew 32% over the comparable quarter to $0.75.
Sales in the most recent quarter actually grew 13%, but this growth was reduced by one percent due to unfavorable currency translation.
Company management cited an improving marketplace for retrofit and renovation lighting applications. Fiscal 2014 should experience mid- to high-single-digit growth over the last fiscal year, with March order rates showing solid improvement.
Acuity Brands actually missed Wall Street consensus on both revenues and earnings, but the stock went up anyway after management said its order trend was improving. The company’s one-year stock chart is featured below:
But even with the relative good news and positive market reaction to the company’s latest results, Acuity Brands remains one expensive stock. And this is the dilemma for a good portion of this market.
Stocks have already gone up. Many good businesses have seen their valuations and share prices expand to a point that’s beyond reasonable, considering their growth rates and corporate outlooks.
The Fed’s lavish catering to Wall Street’s short-term needs continues to skew the sensible. Acuity Brands should have sold off on its earnings report.
Trading at 27-times (X) its forward earnings, the company’s share price appreciated by more than three percent on the day it reported. Expectations for new order growth were solid, but the earnings miss was around $0.08 per share.
This is the market investors have to live in these days, and it’s likely to remain this way, so long as the Fed is so unabashedly accommodative with its monetary policy and words.
Acuity Brands is a good business, but I don’t want to buy the stock at an all-time record-high at its current valuation.
Value in the equity universe is becoming a tough thing to come by. (See “This Energy Stock to Be Major Beneficiary of LNG Build-Out?”) It’s part of the reason why I view investment risk as being so high for new positions, and it’s why investors shouldn’t be in any rush to buy stocks now.
Also reporting very good growth for a mature enterprise was Cal-Maine Foods, Inc. (NASDAQ:CALM), which is the largest producer and distributor of fresh eggs in the U.S.
Sales for its fiscal third quarter of 2014 (ended March 1) grew 10% to $395.5 million, while earnings grew a whopping 40% on the back of what management said was strong retail demand for eggs, even with higher prices.
Cal-Maine Foods has doubled on the stock market over the last three years and is fully priced.
No doubt, it’s tough to be a buyer in this market. Everything’s already gone up.