Rising industrial activities and advancements in technology are aiding the sustained growth within the industrial equipment sector. In response to such trends, let us evaluate the prospects of industrial stocks Plug Power, Inc. (PLUG) and LSI Industries Inc. (LYTS) to determine which one of these is a better buy now.
PLUG delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, stationary power market, and others in North America and internationally, whereas LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America.
Before examining the fundamentals of these stocks, let's consider the key elements driving the evolution of the industrial equipment sector.
The industrial sector has shown notable resilience in the face of geopolitical upheaval and the Federal Reserve's persistent rate increases. This rebound can be attributed to a broad upturn in worldwide economic activities.
Growth is particularly noticeable in the Asia-Pacific region experiencing rapid industrialization, which augments the market demand for cutting-edge automated industrial machinery. This anticipated swell in demand promises to bolster the overall momentum of the industrial equipment sector.
Simultaneously, technological strides are having an auxiliary impact on the industrial sector. Manufacturers are increasingly embracing standout technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), and robotics as they strive to boost the efficiency and productivity of their industrial machinery.
Looking ahead, the global industrial machinery market is forecasted to grow significantly and is poised to reach $708.30 billion by 2027, growing at a CAGR of 6.7%. The global construction equipment market is estimated to reach $313.9 billion by 2031, growing at a CAGR of 4.8%.
PLUG gained 6.6% intraday versus LYTS’ marginal gain of 0.8%. However, over the past year, PLUG has lost 46.3% to close the last trading session at $10.61, while LYTS has gained 91.8% to close the last trading session at $11.99.
Latest Developments
On June 27, PLUG announced that it is part of a consortium of companies that received a $21.80 million grant from the European Commission to build an offshore hydrogen production plant. As a member of the nine-company consortium Hydrogen Offshore Production Europe (HOPE), PLUG will design and deliver a 10-megawatt proton exchange membrane electrolyzer system to the site in the North Sea.
This project aims to prove the commercial sustainability of renewable offshore hydrogen production, aiming to enable the deployment of commercial large-scale solutions.
On June 26, LYTS announced that it had earned the opportunity to join the broad-market Russell 3000®Index at the conclusion of the 2023 Russell indexes annual reconstitution.
LYTS’ President and CEO, James A. Clark, stated, “Our addition to the Russell 3000®Index is a testament to the many contributions of our employees and partners who, as one team, remain committed to building an integrated platform of scale within the advanced lighting and display solutions markets.”
On June 15, EV Range collaborated with LG Business Solutions, Broadsign, and LYTS to launch ChargeCast, a remotely-managed, signage and advertising-supported electric vehicle charger solution. LYTS is a leading manufacturer of outdoor display and digital signage solutions, and building ChargeCast would enable the company to extend its digital signage opportunities to a new market.
Recent Financial Results
For the fiscal first quarter that ended March 31, 2023, PLUG’s net revenues stood at $210.29 million, while its gross loss widened 96.3% year-over-year to $69.40 million. The company’s operating loss widened 50.8% year-over-year to $209.80 million.
Its net loss and net loss per share increased 32% and 29.6% from the prior-year quarter to $206.56 million and $0.35, respectively. Moreover, the company’s accumulated deficit, as of March 31, 2023, stood at $3.33 billion, compared to $3.12 billion as of December 31, 2022.
For the fiscal third quarter that ended March 31, 2023, LYTS’ net sales stood at $117.47 million, up 6.7% year-over-year. The company’s gross profit grew 20.2% year-over-year to $32.20 million. Its adjusted net income and adjusted earnings per share stood at $5.50 million and $0.19, up 30.4% and 26.7% year-over-year, respectively.
As of March 31, 2023, LYTS’ net debt stood at $48.22 million, compared to the $83.71 million as of March 31, 2022. As of March 31, 2023, its total current liabilities stood at $66.04 million, compared to $74.62 million as of June 30, 2022.
Past and Expected Financial Performance
LYTS’ revenue has grown at 15.7% and 7.9% CAGRs over the past three and five years, respectively, while PLUG’s grew at 45.7% and 47.3% CAGRs over the past three and five years, respectively.
PLUG’s revenue for the fiscal year ending December 2023 is expected to come in at $1.30 billion, while its EPS is expected to be negative $0.86. Moreover, PLUG failed to surpass consensus EPS estimates in each of the four trailing quarters and consensus revenue estimates in three of the four trailing quarters, which is disappointing.
For the fiscal years ending June 2023 and 2024, LYTS’ revenue is expected to increase 8.1% and 5.9% year-over-year to $492.01 million and $520.94 million, respectively. For the fiscal years 2023 and 2024, Street expects its EPS to come in at $0.76 and $0.92, up 41.4% and 20.1% year-over-year, respectively.
Furthermore, LYTS’ EPS for the fiscal first quarter ending September 2023 is expected to come in at $0.25, up 13.6% year-over-year, whereas its revenue is expected to be $133 million, up 4.7% year-over-year. The company surpassed EPS and revenue estimates in each of the four trailing quarters, which is impressive.
Profitability
LYTS has a trailing-12-month gross profit margin of 26.67% compared to PLUG’s negative 25.52%. LYTS’ trailing-12-month asset turnover of 1.66x compares to PLUG’s 0.13x. Also, LYTS’ trailing-12-month EBIT margin of 6.89% compares with PLUG’s negative 93.54%.
Thus, LYTS is more profitable.
Valuation
In terms of forward EV/Sales, LYTS is trading at 0.79x, 81.8% lower than PLUG, which is currently trading at 4.33x. LYTS’ forward Price/Sales multiple of 0.67 is 86.3% lower than PLUG’s 4.89.
Thus, LYTS is relatively affordable.
POWR Ratings
LYTS has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. On the other hand, PLUG has an overall F rating, which equates to a Strong Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
LYTS’ Quality grade of B is substantiated by its trailing-12-month levered FCF margin of 7.08%, which is 34.9% higher than the industry average of 5.24%, and trailing-12-month asset turnover ratio of 1.66x, which is 109.1% higher than the industry average of 0.79x.
Conversely, PLUG’s F grade for Quality is evident from its trailing-12-month levered FCF margin of negative 155%, which compares to the industry average of 5.24%, and its trailing-12-month asset turnover ratio of 0.13x is 83% lower than the industry average of 0.79x.
Moreover, LYTS’ A grade for Value is justified by the stock’s forward non-GAAP P/E of 13.55x, which is 20.9% lower than the industry average of 17.12x, while its forward EV/Sales multiple of 0.79 is 54.1% lower than the industry average of 1.71.
PLUG’s Value grade of D is evident from the stock’s forward EV/Sales multiple of 4.33, which is 153.4% higher than the industry average of 1.71, and its forward Price/Sales of 4.89x is 260.6% higher than the industry average of 1.36x.
Furthermore, LYTS’ A grade for Sentiment is in sync with the optimistic analyst estimates, whereas PLUG’s F grade for Sentiment is evident from its bleak bottom-line estimate.
Within the B-rated Industrial - Equipment industry, LYTS is ranked #4, while PLUG is ranked #89 out of 92 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, and Stability. Get all ratings of LYTS here. To view PLUG’s ratings, click here.
The Winner
Enduring strength in the industrial equipment sector is driven by robust demand for technologically advanced and automated machinery that are aimed at enhancing efficiency in production processes, which should benefit industrial companies such as PLUG and LYTS.
However, considering LYTS’ robust profitability scenario, attractive valuation, and promising bottom-line estimates, the stock could be a better choice than PLUG.
Moreover, LYTS’ Board of Directors declared a regular quarterly dividend of $0.05 per share in connection with the third quarter of fiscal 2023, which was paid to shareholders on May 16. This indicated an annual dividend rate of $0.20 per share, which translates to a dividend yield of 1.67%.
The company’s four-year average yield is 2.83%. This reflects its shareholder return abilities.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Equipment industry here.
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PLUG shares were trading at $10.70 per share on Monday afternoon, up $0.09 (+0.85%). Year-to-date, PLUG has declined -13.50%, versus a 15.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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