Are Prospects Bright for LSI Industries (LYTS) Stock?

By Mijuško Šibalić, Stock Market Writer and Stock Researcher

December 2, 2024 11:58 AM UTC

Are Prospects Bright for LSI Industries (LYTS) Stock?

Commercial lighting might not be the first place you’d look to find outsized returns. But LSI Industries (NASDAQ: LYTS) is a prime example of how looking at, dare we say “boring” sectors is still worthwhile — provided that you know what factors to focus on.

LYTS has a Zen Rating of A, meaning it’s rated a Strong Buy through our proprietary quant ratings system, which evaluates 115 factors proven to drive growth. On average, stocks with an “A” rating see an average annual return of 32.52%. So how is LYTS faring? A month away from the end of the year, LYTS stock is sitting at a return of 47.58% YTD. Yet it’s still priced at just $20.44 and remains quite affordable.

LYTS YTD price chart

This wasn’t the result of some crazy, sudden moves to the upside, either. Of all the component grades that make up a stock’s Zen Rating, LYTS’ Safety rating is the highlight, graded “A” — indicating consistent, stable, and predictable revenue inflow. To boot, at present, the stock’s beta is 0.91, and it has been in a consistent uptrend since November of 2022.

Broadly speaking, this is a rare case where all of the metrics look great.

While it might not seem like it at times (particularly in bull markets), valuations matter — particularly in the long run. This is an area where LYTS shines, pun intended.

The business holds a “B” Value rating — despite that 47.58% YTD return, it is still trading at a modest 25.35x price-to-earnings (P/E) ratio.

For comparison’s sake, the market average is 27.54x — while the electronic component industry average is significantly higher, at 68.04x. LSI also happens to be the top-ranked stock in its industry — which carries an “A” industry rating itself.

Things are no less impressive when taking into account forecasted earnings — with a price-to-earnings growth (PEG) ratio of just 1.03x.

LSI Industries’ last earnings call, covering Q1 FY2025 saw a double beat — earnings per share (EPS) came in at $0.22, outperforming consensus estimates of $0.20 by 10% — while revenues of $138.1 million outperformed market expectations by 5.5%.

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None of this involved significant leverage — the business maintains a modest 0.66 debt-to-equity ratio, although margins did slip slightly, down to 4.9% from last year’s 5.6%.

On the less numerical side of things, in April, the company acquired lighting manufacturer EMI Industries in a $50 million all-cash purchase — both expanding the company’s offerings and securing EMI’s well-established client base, including regional and international brands.

Earnings are expected to grow by 24.67 on an annual basis — although that is a slight deceleration from the 30.1% annual average seen in the last five years, it’s still far above the industry average of just 1.91%.

Thus far, management has been able to secure an admirable level of growth — in 2023, the company adopted quite the ambitious five-year plan — the “Fast Forward” strategy is eyeing $800 million in net sales by FY2028. Looking at past performance, we’d be quite confident in hitching our wagon to this train — particularly at its current valuation.

In a little less than two months, on January 23, LSI will hold its next earnings call — if it’s piqued your interest, consider adding it to your watchlist — and setting a reminder in your calendar.

—> Click here to research LSI. If you’re looking for other stable companies to invest in, consider taking a look at our Low Beta screener.