Applied Industrial 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 12.4% to $330.48 per share while the index has gained 8.9%.

Is now the time to buy AIT? Find out in our full research report, it’s free.

Why Does Applied Industrial Spark Debate?

Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE: AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.

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.

Applied Industrial’s EPS grew at 24.4% compounded annual growth rate over the last five years, higher than its 8.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

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).

Applied Industrial’s five-year average ROIC was 20%, 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:

Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing Engineered Components and Systems companies. This metric gives visibility into Applied Industrial’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, Applied Industrial failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Applied Industrial might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

Final Judgment

Applied Industrial’s merits more than compensate for its flaws. At $330.48 per share (or 27.7× 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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