Acuity's Volume Declines Are Worrisome, But The Market Reaction Seems Extreme

The markets typically care more about margins than revenue … until they don’t. While Acuity Brands (AYI) once again did well on the margin lines, the market seemed more than just spooked by the severe year-over-year erosion in volume. I’d also assume that the weaker call on non-residential construction, one of the markets expected to be stronger for multi-industrials this year, didn’t exactly help matters.

I don’t love lighting as a business and I think Acuity has a long way to go before its more sophisticated control and IoT businesses kick in meaningful contributions. Even so, I’m surprised the shares trade where they do. I mean, I get that the market doesn’t like lighting stories, but that seems overdone here. It’s tough to buy into a sector that I don’t really like, and I know the undervaluation here could persist (particularly if volume stays so weak), but the valuation is enough to make this a name to keep watching.

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Acuity's Volume Declines Are Worrisome, But The Market Reaction Seems Extreme