Every week I analyze some 10,000 stocks for this series. As I’m sure you’ve noticed, the markets have seen some tremendous headwinds in recent weeks.

That makes the job of finding good companies difficult… but never impossible.

In all market conditions – no matter how bad things are – we can look at things like valuations, dividend deals, revenue growth and cash flow to find diamonds in the rough.

This week’s stock fits that bill perfectly…

As you’ll see, like many stocks, this electrical manufacturer took its licks during the COVID-19 pandemic. Yet its core financials show that the business has performed quite well.

When we look at the return on capital employed… return on equity… and earnings per share… the picture is much rosier than you’d expect at first glance. That could spell big opportunity for investors willing to dig deeper.

So join me as I do exactly that in today’s Stock of the Week.

Click on the thumbnail below to watch the video.

And if you have a stock you’d like me to analyze for a future episode of Stock of the Week, be sure to send it to mailbag@manwardpress.com.

Transcript

Hi, everyone. It’s time for another Stock of the Week. And we’ve been analyzing deeply and widely… across valuations, revenue growth, dividend deals, cash flow… across some 10,000-odd stocks to bring you the ones we think are worth looking at. So what’s the Stock of the Week this week?

Well, I’m Alpesh Patel, as you know, the person behind GVI Investor. The markets have had a lot of headwinds and difficult times. So it makes it even more difficult to find good companies, of course. And that’s fine. That’s our job. We’re not complaining.

And this week’s Stock of the Week is Acuity Brands. Now, in case you don’t know this company, they provide lighting and building management solutions globally – but principally in North America. Customers include electrical distributors, electric utilities, home improvement centers – as you can imagine – and so on.

And that whole house-refurbishment market… of course, it grew tremendously during COVID. Everybody was at home, and we still think the numbers are warranted to look at this as a Stock of the Week. The company’s been around for a while, over 20 years now.

But it was the financials which caught my attention. Whilst this year it’s lagged, last year, it was up 74% – COVID, as you’d expect. The year before, it was down 12%. The year before that, it was up 20%. So you might say, “Well, wait a minute. This is not a consistent grower.”

Actually, what we’re looking at with this one is to catch up from missing out on some of the gains. The market’s particularly looking at companies where they think their laggards but have good revenue growth. And for this one, it was the cash flow which caught my eye.

Cash return on capital invested… 12%. Remember, it’s one of the key factors Goldman Sachs used, Deutsche Bank used. The reason I like it is because it gives me companies which are resilient. In other words, they are ones which shouldn’t fall too far. And if they do fall, they should be able to recover because that cash flow eventually leads into returns.

Another important factor for me is volatility below 20%. In this market environment, with everything crazy going on in the world, yeah, absolutely, I want companies with slightly lower volatility.

But when we look at the broader financials on this – because obviously I’m going to look at more things than that – return on capital employed… tick. Return on equity… 17.8%. Good, no issues there. When I look at the valuation and the forecast price earnings… 14 times price-to-earnings ratio on what are forecasted profits. And those are things which can be exceeded. Expectations can be exceeded and therefore give the share price a bump up as well.

Relative price to free cash flow – that’s another measure of valuation… a multiple of 16, not too bad. Nothing’s ever as low as you’d want it to be when it comes to valuations. Forecast growth for turnover, for earnings, for pre-tax profits, Earnings per share… all solid numbers as well. And you’ve got a tiny bit of a dividend to boot.

While I looked at turnover… yeah, it’s been a bit flat over the last few years, and that gives us something to play with in the sense that they’d do anything to boost that turnover number – and that’s going to play into the bottom line. Pre-tax profits have been holding fairly steady for the last five years. So again, not a company which is suffering in the sense that it’s being wiped out of the market. It’s holding its own. Net asset value… increasing gradually slowly. Profit… again, sideways. Not going off the scale – sideways.

So some factors which obviously I’d like to see improvement on, but I think that’s where the share price moves will come from. They’ll come from… as those things improve, those metrics improve, it’ll feed into the stock price.

So anyway, that one caught my eye as a Stock of the Week for this week. And for all of you who are already following me in GVI Investor, this gives you a sort of “tip of the iceberg” of the variety of things we look at. Like I said, from valuations to income, to revenue, to dividends, to cash flow, to consistency of performance, to what might lead to the share price moving onwards and upwards as well.

So that gives you some kind of an insight into the kind of research that goes into our work. Thank you very much.