The rapidly expanding industrial activities worldwide and the robust demand for high-quality goods and improved production processes could help the industrial sector to maintain its growth trajectory in the upcoming years. Given the tailwinds, let us evaluate the prospects of two industrial companies.
Applied Industrial Technologies, Inc. (AIT) is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.
ChargePoint Holdings, Inc. (CHPT) offers Electric Vehicle (EV) charging networks and solutions in the United States and internationally. The company provides a portfolio of hardware, software, and services for commercial, fleet, and residential customers.
Geopolitical turmoil and the Fed’s multiple rate hikes have affected the industrial sector. However, its remarkable recovery and resilience could be attributed to improved economic activities worldwide.
Rapid industrialization in Asia-Pacific countries, such as China, India, Japan, and South Korea, could improve the market demand for advanced and automated industrial machinery, consequently helping the overall industrial sector maintain its momentum.
In addition, owing to the technological advancements in the industrial sector, manufacturers are increasingly adopting stand-out technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), and robotics to enhance the efficiency and productivity of their machinery.
The global industrial machinery market is projected to reach $1.04 trillion by 2032, growing at a CAGR of 5.3% from 2023 to 2032.
AIT has gained 8.5% over the past six months, whereas CHPT has plunged 13.9%. Over the past month, AIT has gained 9.3% to close the last trading session at $137.02, while CHPT lost 11.5% over the past month to close the last trading session at $7.36.
But which stock is a better buy now? Let’s find out.
Latest Developments
On April 04, 2023, AIT announced the acquisition of Advanced Motion Systems Inc., a provider of automation products, services, and engineered solutions focused on a full range of machine vision, robotics, and motion control products and technologies.
This should broaden AIT’s footprint in the U.S. Upper Northeast region and strengthen relationships with leading suppliers tied to AIT’s growth strategy.
On April 4, it was announced that ALD Automotive, a leading global sustainable mobility player, had signed an international agreement with CHPT to create a new EV charging business in Europe for international and local corporate clients.
The joint initiative aims to create a unique electric Mobility Service Provider (eMSP) to accelerate corporate fleet electrification.
Recent Financial Results
For the fiscal third quarter that ended March 31, 2023, AIT’s net sales stood at $1.13 billion, up 15.4% year-over-year, while its gross profit grew 15.9% from the prior-year quarter to $333.12 million. Also, the company’s operating income increased 32.4% year-over-year to $126.91 million.
In addition, AIT’s adjusted net income and adjusted net income per share came in at $93.53 million and $2.38, respectively. Moreover, its free cash flow for the quarter came in at $67.21 million, up 38.9% year-over-year. Also, as of March 31, 2023, AIT’s total current assets were $1.51 billion, compared to $1.36 billion as of June 30, 2022.
CHPT’s total operating expenses increased 8.4% year-over-year to $110.46 million in the fiscal first quarter that ended April 30, 2023. The company reported a loss from operations of $79.92 million for the same quarter. In addition, net loss attributable to common stockholders and net loss per share came in at $79.39 million and $0.23, respectively.
For the same quarter, CHPT’s non-GAAP adjusted EBITDA loss came in at $48.91 million. Also, as of April 30, 2023, the company’s total current liabilities stood at $288.36 million, compared to $284.34 million as of January 31, 2023.
Past and Expected Financial Performance
AIT’s total assets grew at 4.5% CAGR over the past three years, while CHPT’s grew at a 66.5% CAGR over the same period.
AIT’s revenue for the fiscal year ending June 2023 and December 2024 is expected to rise 14.7% and 0.8% year-over-year to $4.37 billion and $4.40 billion, respectively. Its EPS for the fiscal years 2023 and 2024 is expected to come in at $8.56 and $8.63, up 30.1% and 0.8% year-over-year, respectively.
AIT’s revenue and EPS for the fiscal fourth quarter ending June 2023 are expected to increase 5.1% and 7.4% year-over-year to $1.12 billion and $2.17, respectively.
For the fiscal years ending January 2023 and 2024, CHPT’s EPS is expected to be negative $0.47 and $0.14, respectively. For the fiscal years 2023 and 2024, Street expects its revenue to come in at $686.47 million and $1.05 billion, respectively.
Furthermore, CHPT’s EPS for the fiscal second quarter ending July 2023 is expected to come in at a negative $0.13, whereas its revenue is expected to come in at $154.88 million.
Profitability
AIT has trailing-12-month EBIT and net income margins of 10.52% and 7.73% compared to CHPT’s negative 64.26% and 64.91%, respectively. AIT’s trailing-12-month ROCE, ROTA, and ROTC of 26.92%, 14.11%, and 14.85% compare with CHPT’s negative 84.59%, 31.83%, and 28.99%, respectively.
Thus, AIT is more profitable.
Valuation
In terms of forward EV/Sales, AIT is trading at 1.31x, 65.9% lower than CHPT, which is currently trading at 3.84x. AIT’s forward Price/Sales multiple of 1.21 is 68.1% lower than CHPT’s 3.79.
Hence, AIT is cheaper.
POWR Ratings
AIT has an overall rating of B, translating to Buy in our POWR Ratings system, whereas CHPT has an overall F rating, which equates to a Strong Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AIT’s Quality grade of B is substantiated by its trailing-12-month asset turnover ratio of 1.73x, which is 116.6% higher than the industry average of 0.80x.
Conversely, CHPT’s F grade for Quality is evident from its trailing-12-month asset turnover ratio of 0.48x, 39.7% lower than the 0.80x industry average.
Moreover, AIT’s A grade for Momentum is justified as the stock is trading above its 50-day and 200-day moving averages of $132.34 and $127.79, respectively, indicating an uptrend.
On the other hand, CHPT’s Momentum grade of D is in sync with the stock trading below its 50-day and 200-day moving averages of $8.72 and $11.20, respectively.
AIT has a grade of B for Sentiment, consistent with its solid financial performance and optimistic analyst estimates. On the contrary, CHPT’s Sentiment grade of D is justified by its bleak bottom-line estimates.
Within the B-rated Industrial - Equipment industry, AIT is ranked #25, while CHPT is ranked #88 out of the 90 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, and Stability. Get all ratings of AIT here. To view CHPT’s ratings, click here.
The Winner
The industrial equipment sector is anticipated to remain fortified amid solid demand for advanced and automated machinery to streamline the production process.
However, considering AIT’s robust profitability scenario, cheaper valuations, and promising bottom-line estimates, the stock could be a better choice than CHPT.
Moreover, recently, AIT declared a quarterly dividend of $0.35 per common share, payable to shareholders on August 31. Its annualized dividend rate of $1.40 per share yields 1.02% on prevailing prices. AIT’s four-year average dividend yield is 1.61%.
The company’s dividend payouts have grown at CAGRs of 3.1% and 3.2% over the past three and five years, respectively. The company’s shareholder return abilities are reflected here.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Equipment industry here.
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AIT shares were trading at $139.99 per share on Monday morning, up $2.97 (+2.17%). Year-to-date, AIT has gained 11.65%, versus a 13.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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