Over the past six months, Lennox’s shares (currently trading at $487.39) have posted a disappointing 18.2% loss, well below the S&P 500’s 17.2% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is this a buying opportunity for LII? Find out in our full research report, it’s free for active Edge members.
Why Does LII Stock Spark Debate?
Based in Texas and founded over a century ago, Lennox (NYSE: LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.
Two Positive Attributes:
1. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Lennox’s EPS grew at an astounding 20.1% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Lennox’s five-year average ROIC was 52.3%, placing it among the best industrials companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to be Careful:
Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing HVAC and Water Systems companies. This metric gives visibility into Lennox’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Lennox’s organic revenue averaged 6.4% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
Final Judgment
Lennox’s merits more than compensate for its flaws. With the recent decline, the stock trades at 20.1× forward P/E (or $487.39 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
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