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$354 and falling to the lows of US$310. 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$331 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.
Is Lennox International still cheap?
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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Lennox International’s ratio of 25.27x is trading slightly above its industry peers’ ratio of 21.22x, which means if you buy Lennox International today, you’d be paying a relatively reasonable price for it. And if you believe that Lennox International should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Lennox International’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Lennox International?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Lennox International, it is expected to deliver a relatively unexciting earnings growth of 8.0%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? LII’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. 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 an eye on LII, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for Lennox International you should know about.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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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.
Established dividend payer with limited growth.