At US$309, Is Lennox International Inc. (NYSE:LII) Worth Looking At Closely?

By
Simply Wall St
Published
January 12, 2022
NYSE:LII
Source: Shutterstock

Today we're going to take a look at the well-established Lennox International Inc. (NYSE:LII). The company's stock saw significant share price movement during recent months on the NYSE, rising to highs of US$333 and falling to the lows of US$295. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Lennox International's current trading price of US$309 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lennox International’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Lennox International

What is Lennox International worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 22.92x is currently trading slightly above its industry peers’ ratio of 21.31x, which means if you buy Lennox International today, you’d be paying a relatively reasonable price for it. And if you believe Lennox International should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Lennox International’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Lennox International?

earnings-and-revenue-growth
NYSE:LII Earnings and Revenue Growth January 12th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Lennox International's earnings over the next few years are expected to increase by 26%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in LII’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at LII? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on LII, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for LII, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Lennox International at this point in time. Case in point: We've spotted 2 warning signs for Lennox International you should be aware of.

If you are no longer interested in Lennox International, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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