Stock Analysis

Did Business Growth Power Lennox International's (NYSE:LII) Share Price Gain of 134%?

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NYSE:LII
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When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. One great example is Lennox International Inc. (NYSE:LII) which saw its share price drive 134% higher over five years.

See our latest analysis for Lennox International

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Lennox International managed to grow its earnings per share at 14% a year. This EPS growth is lower than the 19% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NYSE:LII Earnings Per Share Growth January 20th 2021

This free interactive report on Lennox International's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Lennox International the TSR over the last 5 years was 148%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Lennox International shareholders are up 17% for the year (even including dividends). But that was short of the market average. On the bright side, the longer term returns (running at about 20% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for Lennox International you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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What are the risks and opportunities for Lennox International?

Lennox International Inc., together with its subsidiaries, designs, manufactures, and markets a range of products for the heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally.

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Rewards

  • Earnings are forecast to grow 6.54% per year

  • Earnings have grown 9.7% per year over the past 5 years

Risks

  • Debt is not well covered by operating cash flow

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

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Share Price

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1Y Return

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Lennox International

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