LSI (LYTS)

Commercial lighting and retail display solutions provider LSI (NASDAQ:LYTS) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 13.9% year on year to $157.2 million. Its non-GAAP profit of $0.31 per share was 10.7% above analysts’ consensus estimates.

Company Overview

Enhancing commercial environments, LSI (NASDAQ:LYTS) provides lighting and display solutions for businesses and retailers.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Competitors of LSI include Acuity Brands, Inc. (NYSE:AYI), Hubbell Incorporated (NYSE:HUBB), and Eaton Corporation plc (NYSE:ETN).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, LSI’s sales grew at an incredible 15.6% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. LSI’s annualized revenue growth of 9.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, LSI reported year-on-year revenue growth of 13.9%, and its $157.2 million of revenue exceeded Wall Street’s estimates by 5.2%.

Looking ahead, sell-side analysts expect revenue to grow 1.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

LSI has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 26% gross margin over the last five years. Said differently, LSI had to pay a chunky $74.03 to its suppliers for every $100 in revenue.

In Q3, LSI produced a 25.6% gross profit margin, marking a 1.2 percentage point increase from 24.4% in the same quarter last year. On a wider time horizon, however, LSI’s full-year margin has been trending down over the past 12 months, decreasing by 1.9 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

LSI was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.4% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, LSI’s operating margin rose by 2.8 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, LSI generated an operating margin profit margin of 7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

LSI’s EPS grew at an astounding 50.7% compounded annual growth rate over the last five years, higher than its 15.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of LSI’s earnings can give us a better understanding of its performance. As we mentioned earlier, LSI’s operating margin was flat this quarter but expanded by 2.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For LSI, its two-year annual EPS growth of 3.3% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, LSI reported adjusted EPS of $0.31, up from $0.26 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects LSI’s full-year EPS of $1.11 to grow 9.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

LSI has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.4%, subpar for an industrials business.

LSI broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 8.2 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

LSI’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.6%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, LSI’s ROIC increased by 3.2 percentage points annually over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

LSI reported $7.14 million of cash and $50.68 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $57.31 million of EBITDA over the last 12 months, we view LSI’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $1.51 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly LSI blew past analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $22.99 immediately following the results.

Updated: December 3, 2025 at 10:10 PM EST

When considering an investment in LSI, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We think LSI is a solid business. First off, its revenue growth was exceptional over the last five years. And while its gross margins are lower than its industrials peers, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its expanding operating margin shows the business has become more efficient.

LSI’s P/E ratio based on the next 12 months is 14.6x. Looking at the industrials landscape right now, LSI trades at a pretty interesting price. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $27.67 on the company (compared to the current share price of $18.50), implying they see 49.5% upside in buying LSI in the short term.