Lennox has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 12.3% to $501.49 per share while the index has gained 11.6%.
Is LII a buy right now? Find out in our full research report, it’s free.
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. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Looking at the trend in its profitability, Lennox’s operating margin rose by 5.2 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 19.7%.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Lennox’s five-year average ROIC was 37.8%, 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 5% year-on-year growth. This performance was underwhelming 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 positive characteristics outweigh the negatives, but at $501.49 per share (or 20.1× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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