Rising global industrial activities have heightened the demand for machinery and equipment, sustaining the industrial sector's growth. In this piece, I compared two industrial stocks, Plug Power Inc. (PLUG) and Applied Industrial Technologies, Inc. (AIT), to determine which could generate better returns.
Before I compare the fundamentals of these stocks, let’s see what’s happening in the industrial space.
In August, industrial production surged by 0.4%, while manufacturing output experienced a marginal 0.1% uptick. Total industrial production for August, standing at 103.5% of its 2017 baseline, surpassed its year-ago level by 0.2%. Furthermore, capacity utilization rose to 79.7% in August, aligning precisely with its historical average.
Government policies, exemplified by the U.S. Department of Energy's substantial $6 billion commitment to industrial decarbonization, are anticipated to further bolster the demand for industrial machinery.
This investment, set to drive technological advancements, reduce costs, enhance market positioning, generate employment, foster sustainable supply chains, and establish global clean energy leadership, is primed to rejuvenate and expand the industrial sector.
Concurrently, technological advancements are exerting a supplementary influence on the industrial sector. Manufacturers are progressively adopting cutting-edge technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), and robotics to elevate the efficiency and productivity of their industrial machinery.
Going forward, the global industrial machinery market is estimated to reach $708.30 billion by 2027, growing at a CAGR of 6.7%. That said, PLUG and AIT are expected to benefit from the industry’s tailwinds.
In terms of price performance, PLUG has declined 4.2% over the past month compared to AIT’s 2.9% gain. Moreover, PLUG has plunged 21.3% over the past three months, compared to AIT’s 14.9% rise during the same period.
Also, PLUG has plummeted 40.9% over the past nine months to close the last trading session at $8.52, while AIT has jumped 26.3% during the same time frame to close the last trading session at $156.97.
But which Industrial - Equipment stock could be a better pick? Let’s find out.
Recent Developments
On August 30, PLUG, in response to a civil case filed by the U.S. Securities and Exchange Commission in March 2021, agreed to pay a substantial penalty of $1.25 million. This penalty is a consequence of PLUG's lapses in financial reporting, accounting, and control measures.
The company's settlement does not entail any admission of wrongdoing by PLUG. However, it is important to note that this case revolves around the improper accounting of sale-and-leaseback arrangements for specific hydrogen fuel equipment.
Furthermore, it encompasses PLUG's failures in accurately assessing losses and expenses pertaining to maintenance contracts and bonuses. These regulatory issues cast a shadow over the company's financial integrity and governance, potentially eroding investor confidence and tarnishing its reputation.
On September 5, AIT announced its acquisition of Bearing Distributors, Inc. and Cangro Industries, Inc. These companies specialize in bearings, power transmission, industrial motion, and related service and repair in Columbia, South Carolina, and Long Island, New York, respectively.
These acquisitions, spanning the U.S. Southeast and Upper Northeast, are expected to bolster AIT's presence and strategic growth efforts in these vital regions. This involves fortifying connections with top suppliers, expanding local customer reach, and expediting AIT's strategic entry into crucial emerging market sectors.
Recent Financial Results
For the second quarter that ended June 30, 2023, PLUG’s gross loss worsened 140.7% year-over-year to $78.14 million. Its operating loss widened 59.2% from the year-ago value to $233.84 million. Also, the company’s net loss and net loss per share worsened by 36.4% and 33.3% year-over-year to $236.40 million and $0.40, respectively.
For the fiscal 2023 fourth quarter that ended June 30, AIT’s gross profit grew 10.4% year-over-year to $338.56 million. Its EBITDA rose 16.7% from the year-ago value to $140.02 million.
Also, the company’s net income and net income per share increased 16.6% and 16.3% from the prior year’s period to $92.22 million and $2.35, respectively.
Past and Expected Financial Performance
Over the past three years, PLUG’s revenue increased at a CAGR of 50.2%. Moreover, its total assets rose at a CAGR of 75.7% during the same time period.
Analysts expect PLUG’s revenue to increase 86.8% year-over-year to $1.31 billion for the fiscal year ending December 2023. However, the company is expected to report a loss per share of $1.18 for the current year. Also, the company missed its consensus EPS estimates in all four trailing quarters, which is disappointing.
Over the past three years, AIT’s revenue and EBITDA increased at a CAGR of 10.8% and 22.9%, respectively. Its net income and EPS surged at respective CAGRs of 143.4% and 142.5%.
The consensus revenue estimate of $4.51 billion for the fiscal year ending June 2024 reflects a 2.3% improvement year-over-year. Likewise, the company’s EPS for the ongoing year indicates a 4.3% rise from the prior year to $9.13. Also, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Valuation
In terms of trailing-12-month Price/Sales, PLUG is currently trading at 5.69x, 315.3% higher than AIT, which is trading at 1.37x. Also, PLUG’s trailing-12-month EV/Sales multiple of 5.70 is 290.4% higher than AIT’s 1.46x. However, PLUG’s trailing-12-month Price/Book multiple of 1.37 compares with AIT’s 4.16.
Profitability
AIT’s trailing-12-month revenue is five times that of what PLUG generates. Moreover, AIT is more profitable, with a trailing-12-month gross profit margin of 29.16%, compared to PLUG’s negative 26.84%.
Additionally, AIT’s trailing-12-month EBITDA and net income margin are 11.89% and 7.86%, respectively, compared to AIT’s EBITDA margin of negative 81.45% and net income margin of negative 95.15%.
POWR Ratings
PLUG has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, AIT has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PLUG has an F grade for Quality, justified by its poor profitability. The stock’s trailing-12-month EBIT margin and net income margin of negative 88.39% and 95.15% compare with the industry average of 9.75% and 6.19%, respectively.
On the other hand, AIT has a B grade for Quality, justified by its high profitability. The stock’s trailing-12-month EBIT margin of 10.69% is 9.6% higher than the industry average of 9.75%. Also, its trailing-12-month net income margin of 7.86% is 26.8% higher than the 6.19% industry average.
In addition, PLUG has a D grade for Momentum. It is trading below its 50-day and 200-day moving averages of $10.14 and $11.52, respectively. On the contrary, AIT has an A grade for Momentum, justified by the stock trading above its 50-day and 200-day moving averages of $149.32 and $137.51, respectively.
Of the 92 stocks in the Industrial - Equipment industry, PLUG is ranked #90, while AIT is ranked #20.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Stability, and Sentiment. Click here to view PLUG’s ratings. Get all AIT ratings here.
The Winner
Leading industrial stocks PLUG and AIT are well-positioned to capitalize on the industry’s prospects. However, considering PLUG’s comparatively poor financial performance, low profitability, and bleak growth prospects, AIT seems to be a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Industrial – Equipment industry here.
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AIT shares were trading at $156.84 per share on Monday afternoon, down $0.13 (-0.08%). Year-to-date, AIT has gained 25.38%, versus a 17.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Plug Power (PLUG) vs. Applied Industrial Technologies (AIT): Which Is the Ultimate Industrial Stock Buy? StockNews.com
