Johnson Controls has had an impressive run over the past six months as its shares have beaten the S&P 500 by 20.3%. The stock now trades at $149.89, marking a 31.3% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now still a good time to buy JCI? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does Johnson Controls Spark Debate?

Founded after patenting the electric room thermostat, Johnson Controls (NYSE: JCI) specializes in building products and technology solutions, including HVAC systems, fire and security systems, and energy storage.

Two Positive Attributes:

1. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.

Johnson Controls’s EPS grew at 13% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

2. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Johnson Controls’s margin expanded by 6.5 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Johnson Controls’s free cash flow margin for the trailing 12 months was 10.9%.

One Reason to Be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Commercial Building Products companies by analyzing their organic revenue. This metric gives visibility into Johnson Controls’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, Johnson Controls’s organic revenue averaged 6.4% year-on-year growth. This performance slightly lagged the sector 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

Johnson Controls’s positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at 26.8× forward P/E (or $149.89 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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