Acuity Brands, Inc. (NYSE:AYI)

Earnings growth is clearly very healthy, and has even been accelerating recently as the company’s efforts to improve internal efficiencies bear fruit, and in part due to higher-margin mix. But revenue growth is rather stagnant, and that will eventually reign in earnings growth unless the company can continue to push up-market and capture higher-margin sales. Management itself is targeting earnings growth at half its current pace.

At Thursday’s closing price of $189.00, the current adjusted (non-GAAP) P/E is 38, giving a 1YPEG of 1.09, suggesting that shares are about fairly valued right now on that metric if the company can maintain (and ideally improve) its earnings growth.

But with a P/E so high, it’ll likely only take one hiccup to cause some significant compression, and that doesn’t seem too far fetched to me given the stagnant revenue growth and cyclical nature of the industry.

Glassdoor ratings are also poor, with only 35% recommending to a friend and 42% approving of the CEO. In general, reviews are critical of management and the company culture.

All in all, it seems like an interesting company that is consolidating a fragmented industry, and there appears to be multiple runways for growth between meaningful international expansion and movement up-market into turn-key solutions and building automation. But both are essentially new frontiers for the company, and therefore carry higher risk. Combined with the unforgiving P/E, stagnant revenue growth, low employee satisfaction, and dependence on cyclical industries, I'm passing on this one at this time.