Manufacturing output in the United States increased in January, but output in the prior month was substantially lower than expected due to increased borrowing rates. Despite the tense macroeconomic environment, we think high-quality industrial machinery stock LSI Industries Inc. (LYTS) is worth buying now.

However, Plug Power Inc. (PLUG) might be best avoided, considering its weak fundamentals.

In January, manufacturing output moved up 1% while mining output rose 2%, following substantial decreases in November and December. Total industrial production in January was 0.8% above its year-earlier level.

Additionally, the Bipartisan Infrastructure Law is expected to boost demand through industrial development projects. More than a year into its implementation, it has already delivered $185 billion in funding for the launch of over 6,900 projects, including 2,800 bridge repair and replacement projects.

Furthermore, major technical improvement is predicted to fuel innovation in the industry, which should drive growth. The global industrial machinery market is expected to grow at a 9.5% CAGR until 2028.

Investors’ interest in the industrial sector is evident from the Vanguard Industrials ETF’s (VIS) 13.3% returns over the past nine months.

Let’s discuss the stocks mentioned above in detail:

Stock to Buy:

LSI Industries Inc. (LYTS)

 LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments: Lighting; and Display Solutions.

On January 13, 2023, LYTS announced that its turnkey solar installation at an Austin Quick Stop refuelling and convenience shop resulted in considerable consumer energy savings and a reduction in carbon impact. The system generates 170 megawatt-hours of electricity every year.

LYTS’ forward EV/Sales of 0.92x is 47.9% lower than the industry average of 1.76x. Its forward Price/Sales of 0.78x is 44.1% lower than the industry average of 1.39x.

LYTS’ trailing-12-month ROCE of 14.31% is 2.2% higher than the industry average of 13.99%. Its trailing-12-month ROTA of 7.25% is 39.3% higher than the industry average of 5.20%.

LYTS’ net sales came in at $128.80 million in the fiscal 2023 second quarter that ended December 31, 2022, up 15.9% year-over-year. Its adjusted EBITDA increased 54% year-over-year to $12.98 million. Its adjusted net income came in at $7.63 million, up 79.8% from the prior-year quarter. Also, its adjusted EPS grew 73.3% year-over-year to $0.26.

LYTS’ revenue is expected to increase 9.2% year-over-year to $496.88 million in 2023. Its EPS is estimated to grow 43.8% year-over-year to $0.92 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 110.7% to close the last trading session at $14.22.

LYTS’ strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating represents a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

LYTS has an A grade for Value and Sentiment and a B for Quality. In the Industrial – Equipment industry, it is ranked #2 out of 91 stocks. Click here for the additional POWR Ratings for Growth, Stability, and Momentum for LYTS.

Stock to Avoid:

Plug Power Inc. (PLUG)

PLUG provides end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, the stationary power market, and others in North America and internationally.

PLUG’s forward EV/Sales of 8.84x is 401.1% higher than the industry average of 1.76x. Its forward Price/Sales of 11.22x is 705.1% higher than the industry average of 1.39x.

PLUG’s trailing-12-month ROCE of negative 15.53% is lower than the industry average of 13.99%. Its trailing-12-month ROTA of negative 11.84% is lower than the industry average of 5.20%.

PLUG’s gross loss came in at $46.06 million for the third quarter that ended September 30, 2022, up 48.2% year-over-year. Its net loss and loss per share increased 60.1% and 57.9% from the previous year’s quarter to $170.76 million and $0.30, respectively.

Also, its current asset came in at $3.65 billion for the period that ended September 30, 2022, compared to $4.45 billion for the period that ended December 31, 2021.

Analysts expect PLUG’s EPS to remain negative at $0.21 for the quarter ending March 2023. Moreover, its EPS is expected to decrease by 40% per annum for the next five years. The company missed EPS estimates in each of the trailing four quarters. Over the past six months, the stock has lost 44.9% to close the last trading session at $14.54.

PLUG has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system.

The stock has an F grade for Stability, Sentiment, and Quality and a D for Value. PLUG is ranked #86 in the same industry. For additional PLUG ratings for Growth, and Momentum, click here.

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LYTS shares were trading at $14.42 per share on Thursday afternoon, up $0.20 (+1.41%). Year-to-date, LYTS has gained 18.24%, versus a 3.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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