Applied Industrial trades at $263.52 per share and has stayed right on track with the overall market, gaining 12.2% over the last six months. At the same time, the S&P 500 has returned 12.9%.

Is now the time to buy Applied Industrial, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Is Applied Industrial Not Exciting?

We're cautious about Applied Industrial. Here are three reasons there are better opportunities than AIT and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Engineered Components and Systems companies should track organic revenue in addition to reported revenue. 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).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Applied Industrial’s revenue to rise by 5.1%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

3. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Applied Industrial’s EPS grew at an unimpressive 6% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

Applied Industrial’s business quality ultimately falls short of our standards. That said, the stock currently trades at 24.3× forward P/E (or $263.52 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

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