• If you are wondering whether Applied Industrial Technologies is priced attractively after a strong run, the starting point is to separate recent share price excitement from what the underlying valuation actually suggests.
• The stock last closed at US$330.90, with returns of 2.0% over the past week, 7.7% over the past month, 27.5% year to date and 41.9% over the last year, alongside a very large 3 year gain of 137.3% and a 5 year return of 287.5%.
• These returns have kept Applied Industrial Technologies on the radar for many investors who are examining how the company has been priced by the market. Recent coverage has focused on how the share price levels interact with broader industrial trends and shifting expectations around future growth and risk, which provides context to the sustained strength in the stock.
• At the same time, Simply Wall St currently assigns Applied Industrial Technologies a valuation score of 0 out of 6. This raises questions about how different valuation methods, along with an additional framework discussed at the end of this article, might offer a fuller picture of the stock.

Applied Industrial Technologies scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Applied Industrial Technologies Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and discounting them back to today using a required rate of return. For Applied Industrial Technologies, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections.

The latest twelve month Free Cash Flow for Applied Industrial Technologies is reported at about $439.5 million. Analyst projections and subsequent extrapolations indicate annual Free Cash Flow figures in the hundreds of millions of dollars over the next decade, reaching a projected $647.0 million in 2035 according to the Simply Wall St model assumptions.

After discounting these projected cash flows, the DCF model arrives at an estimated intrinsic value of $269.94 per share. Compared with the recent share price of $330.90, this implies the stock is about 22.6% above the DCF estimate, which suggests Applied Industrial Technologies is trading at a premium to this cash flow based valuation.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Applied Industrial Technologies may be overvalued by 22.6%. Discover 44 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Applied Industrial Technologies Price vs Earnings

For a profitable company like Applied Industrial Technologies, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. Higher growth expectations or lower perceived risk often go hand in hand with a higher, or more generous, P/E multiple, while slower growth or higher risk tend to align with a lower, or more conservative, P/E.

Applied Industrial Technologies currently trades on a P/E of 30.29x. This sits above the Trade Distributors industry average P/E of 24.72x and also above the peer group average of 21.02x. On these simple comparisons, the stock is priced at a richer earnings multiple than many of its sector peers.

Simply Wall St also provides a proprietary “Fair Ratio” of 22.79x, which is an estimate of what Applied Industrial Technologies’ P/E might be given factors such as its earnings growth profile, industry, profit margins, market capitalization and company specific risks. Because this metric is tailored to the company, it offers a more targeted benchmark than broad industry or peer averages. Comparing the current P/E of 30.29x with the Fair Ratio of 22.79x suggests the stock is trading above this fair earnings multiple estimate.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Applied Industrial Technologies Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach a clear story about Applied Industrial Technologies to the numbers by linking your view of its business, your revenue, earnings and margin assumptions, and your fair value estimate. You can then compare that fair value with the current price to help you decide what to do. Each Narrative lives on the Community page, updates automatically as new earnings or news arrive, and can reflect very different perspectives. For example, one investor may focus on the potential impact of automation, robotics, acquisitions and guidance changes that support a fair value near the US$334 analyst consensus. Another investor might focus more on risks around acquisitions, legacy markets and technology adoption and arrive at a much lower fair value for the same stock.

Do you think there's more to the story for Applied Industrial Technologies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.