What a time it’s been for APi. In the past six months alone, the company’s stock price has increased by a massive 50.9%, reaching $34.96 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in APi, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is APi Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on APi for now. Here are three reasons we avoid APG and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. APi’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.2% over the last two years was well below its five-year trend. 
2. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Construction and Maintenance Services companies should track organic revenue in addition to reported revenue. This metric gives visibility into APi’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, APi’s organic revenue averaged 1.2% 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. 
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
APi historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.3%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
APi’s business quality ultimately falls short of our standards. After the recent rally, the stock trades at 22.8× forward P/E (or $34.96 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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