Applied Industrial (AIT): Buy, Sell, or Hold Post Q4 Earnings?

March 27, 2025 at 05:16 AM EDT

AIT Cover Image

Applied Industrial currently trades at $233.89 per share and has shown little upside over the past six months, posting a middling return of 4.9%. However, the stock is beating the S&P 500’s flat performance during that period.

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.

Despite the relative momentum, we're swiping left on Applied Industrial for now. Here are three reasons why you should be careful with AIT and a stock we'd rather own.

Why Is Applied Industrial Not Exciting?

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.

1. Slow Organic Growth Suggests Waning Demand In Core Business

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’s organic revenue averaged 2.5% year-on-year growth. This performance was underwhelming 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. Applied Industrial Organic Revenue Growth

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 6.7%. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

3. Free Cash Flow Margin Dropping

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.

As you can see below, Applied Industrial’s margin dropped by 2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Applied Industrial’s free cash flow margin for the trailing 12 months was 8.9%.

Applied Industrial Trailing 12-Month Free Cash Flow Margin

Final Judgment

Applied Industrial isn’t a terrible business, but it doesn’t pass our quality test. Following its recent outperformance amid a softer market environment, the stock trades at 22.9× forward price-to-earnings (or $233.89 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. Let us point you toward the most dominant software business in the world.

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