APPLIED INDUSTRIAL TECHNOLOGIES, INC. (AIT): what the price assumes

In the published model solve dated 2026-Q2, anchored at $325.57, APPLIED INDUSTRIAL TECHNOLOGIES, INC. (AIT) is priced for today's economics sustained for ~5.3 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/AIT

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 10.2% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.

Per-Model Detail (n=14)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Applied is a technical distributor rather than a catalog one: it sells motion, power, control and automation components into customers' production lines, and the 10-K puts its edge in "the comprehensive set of services and solutions we provide, which we view as critical given the technical nature and application of our core product offering".

• It keeps less of each sales dollar than its best-known peers and still earns more than most of them, converting 10.9% of revenue into operating profit while carrying net borrowings of only about 0.3 times that profit.

• The risk is entirely in what the shares cost: at roughly 25 times what the business earns at the operating line, the level assumes compounding at the fastest self-funded pace for close to seven years, and fiscal fourth-quarter results on August 13, 2026 are the next test of the pace.

Bull Case

Distribution looks like a commodity business until you compare two distributors side by side. Applied kept 30.3% of sales as gross profit in fiscal 2025, up from 29.8%, which is several points thinner than what Fastenal, Grainger or MSC Industrial keep on their own revenue. Yet Applied converts 10.9% of revenue into operating profit, ahead of MSC Industrial's 8.5%, DXP's 8.7% and WESCO's 5.3%. Buying cheaper is not the advantage here. Spending less to serve the customer is. That combination, an ordinary gross margin married to an unusually lean cost line, is the mechanical signature of a business that has genuinely low customer-acquisition and service costs, which in industrial distribution means the customer keeps calling the same branch.

The 10-K locates the reason in the technical content rather than the logistics. Applied describes serving "a segment of the industrial market that requires technical expertise and service as our products and solutions are directly tied to companies' production process, efficiency initiatives", and attributes its position to "the comprehensive set of services and solutions we provide, which we view as critical given the technical nature and application of our core product offering of motion, power, control, and automation technologies". That is a real distinction. A bearing or a hydraulic manifold sitting inside a running production line is not a purchase a plant manager optimizes by a few percent; it is a purchase they want right, first time, from someone who knows the machine.

Consolidation is running in the company's favor and the filing is explicit that management sees it. It notes that industry conditions are "accelerating consolidation across our sector both organically and through acquisitions as customers increase business with larger, more capable distributors while smaller providers face rising operational requirements". Regulatory, systems and inventory demands on distributors keep rising; the small independent shop that used to serve a regional plant can no longer carry the cost. Every one of those that sells or closes is share moving to the handful of distributors large enough to absorb it.

Engineered Solutions is where the mix improves. That segment covers hydraulic and pneumatic fluid power, engineered flow control, and increasingly automation, which the company describes as spanning "the design, assembly, integration, and distribution of machine vision, robotics, digital networking, and motion control technologies". In the most recent reported quarter its sales rose 10.2%, of which 9.3 points were organic rather than acquired, and its gross profit reached 32.6% of segment sales. Automation content carries engineering hours with it, and engineering hours are harder for a rival to undercut than a part number.

The balance sheet gives management the freedom to keep buying into that mix. Net borrowings of roughly $154 million sit at about 0.3 times operating profit, with over $400 million of liquid assets alongside, and the share count has edged down about 0.9% a year over four years. Return on equity ran at 21.7% over the trailing year. A distributor earning that on its book, carrying almost no net debt, in a fragmenting market where scale is becoming the price of entry, does not need a new idea. It needs the industrial economy to keep running and the acquisition pipeline to stay open.

Bear Case

Line up every way of valuing this business and one of them disagrees with all the others. Value the assets and the returns actually earned on them, and the shares come out near a third of where they trade. Capitalize current earnings with no growth assumed and the answer is roughly the same. Apply the multiples the peer group itself carries and the shares reach about half. Only the projection-based methods get to today's level, and they do it by taking recent growth and running it forward across a six-year projection. When a single family of approaches supports a price and every conservative frame lands far below it, the conservative frames are usually describing the business and the optimistic one is describing the expectation. That is the bear case in one paragraph, and everything that follows is detail.

The detail begins with what the projection actually requires. The level embeds operating profit compounding at the fastest pace the business can fund from its own operations, and it needs that pace to run close to seven years. Among comparable fast-growing companies, roughly 23% managed it over that kind of span. Applied's recent record does support the rate; what it has never had to prove is the duration. And the arithmetic is sensitive in the wrong direction: each percentage point of cost of capital shifts the required runway by about a year and three quarters, so a modestly higher discount rate stretches the demand from seven years toward nine.

The business itself is more cyclical than a run of good quarters suggests. Applied sells consumable and replacement components into other people's factories, which means its revenue is a derivative of North American industrial production. When plants run fewer shifts, bearings and hydraulics wear out more slowly and maintenance budgets get deferred first, because deferring them costs nothing this quarter. The 10-K also flags the pricing exposure directly, warning that conditions could adversely impact the company "by creating deflation in selling prices, which could cause our gross profit margin to deteriorate". Industrial distribution earns its spread partly on inflation; disinflation takes it back.

There is a growth-composition problem underneath the headline too. A meaningful share of the expansion comes from acquiring other distributors rather than from selling more through the existing network. That is a legitimate strategy and this company is good at it, but it is a different asset than organic compounding: it consumes cash, it carries integration risk, and it depends on a supply of willing sellers at sensible prices. In the most recent quarter, roughly a point of the ten-point sales gain in Engineered Solutions came from businesses bought rather than built. A multiple that assumes years of self-funded compounding is implicitly assuming the acquisition pipeline never dries up and never gets expensive.

None of this describes a fragile company. Applied earned roughly $520 million at the operating line over the trailing year, and it owes very little against that: net debt of about $154 million is close to no leverage at all. That is precisely why the bear case cannot be about solvency. It has to be about the price. Nothing based on the assets, the current earnings, or the peer group's own multiples reaches today's level. Only a projection does. If industrial demand goes flat for a stretch, the projection loses its input, and there is no cheaper frame underneath to catch the shares.

Valuation

Industrial distributors are ordinarily valued somewhere between a wholesaler and a specialty manufacturer, because that is what they are: thin gross profit, low capital intensity, and returns that come from turning inventory rather than from owning a patent. Applied currently changes hands at roughly 25 times what it earns at the operating line. That is a specialty-manufacturer multiple attached to a distribution cost structure, and the whole question is whether the business has crossed far enough toward the former to keep it.

What the level demands, put plainly, is that operating profit compounds at the fastest rate the business can pay for out of its own cash flow, and that the pace holds across a seven-year run. Two references frame how demanding that is. Against Applied's own record, the rate is inside what it has recently delivered, so the stretch is not the speed but the endurance. Against the broader record of companies that reached comparable rates, roughly 23% held on that long. And the calculation is sensitive: shift the cost of capital by a percentage point and the required runway moves by about a year and three quarters, which is why the figure belongs in a report as an approximate description of the bet rather than a measurement of it.

The valuation approaches split along an unusually clean line. Book value plus the returns earned on it lands near a third of the current level. Capitalizing today's earnings with no growth assumed lands in the same neighborhood. The peer group's own multiples get to roughly half. Only the projection-based approaches reach it, one by carrying the company's recent eight percent cash-flow growth rate forward across a six-year projection, the other by holding the exit multiple flat where it stands today. That is the definition of a durability premium: the static frames have no mechanism for valuing many years of compounding, so they cannot reach a price that is paying for exactly that.

The cohort comparison sharpens rather than settles it. Fastenal converts 20.2% of revenue into operating profit and Grainger 14.2%, both ahead of Applied's 10.9%, and both grew revenue at a similar clip last year. Applied earns less per dollar of sales than the two most admired names in its industry while being valued on an assumption of extended compounding. The counter is that Applied's mix is shifting toward engineered and automation content, where gross profit runs higher; the segment reached 32.6% of its own sales most recently. The question is whether that shift arrives fast enough to matter inside a seven-year window.

Solvency is the one part of this that requires no argument. Net debt of about $154 million works out to roughly 0.3 times operating profit, and the liquid assets on the balance sheet are comfortably larger than the borrowings themselves. The share count has drifted down about 0.9% a year over four years. There is no leverage here to amplify a disappointment, which means a bad two years would show up as a repricing of expectation rather than as financial distress. That is a meaningful distinction for a holder: the downside in this security is the multiple, not the company.

Catalysts

The fiscal third quarter, reported in late April, was the sort of print that keeps a premium multiple intact. Sales reached $1.3 billion, up 7.3% on the year, with 6.0 points of that organic once acquisitions and currency were stripped out. Net income was $99.8 million, or $2.65 a share. The organic share is the number that carries information here, because a distributor can manufacture almost any headline growth rate by buying another distributor. Six points of organic expansion in a soft industrial economy says the existing branches are winning work.

Management also tightened the full-year outlook alongside it, pointing to fiscal 2026 earnings of $10.64 to $10.75 a share on sales growth of 7.2% to 7.7%. That is a narrow range this late in a fiscal year and it implies a fourth quarter broadly in line with the third rather than an acceleration. Anyone underwriting years of compounding at the fastest self-funded pace should note that the company's own near-term guidance describes high single-digit growth, not the rate the valuation is leaning on.

The fiscal year ended on June 30 and the results are due before the market opens on Thursday, August 13, 2026, with a call at 10 a.m. Eastern the same morning. Two things in that report matter more than the headline. The first is the split between organic and acquired growth again, since the gap between the two is the difference between a compounding business and an assembling one. The second is whatever management says about fiscal 2027, because the current level is not underwriting one more good year. It is underwriting most of a decade of them, and the first guidance for the year ahead is where that assumption starts being tested against something concrete.

Peer Cohorts (Per Segment, With Filing Citations)

Service Center (reported)

• MSM (MSC INDUSTRIAL DIRECT CO., INC.)
• FY2025 10-K: …centers, regional inventory centers and warehouses. We service our customers from five customer fulfillment centers, nine regional inventory centers, 38 warehouses and five manufacturing locations. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on…
• FY2025 10-K: …more efficient. Certain of our customer fulfillment centers also utilize robotic packing solutions and order-picking systems that improve productivity and associate safety while reducing energy consumption and saving space. Some specialty or custom items and very large orders are shipped directly from the…
• DXPE (DXP Enterprises, Inc.)
• FY2025 10-K: …through a continuum of customized and efficient MRO solutions. We also provide services such as field safety supervision, in-house and field repair, and predictive maintenance. A majority of our SC segment sales are derived from customer purchase orders for products. Sales are directly solicited from customers by our…
• FY2025 10-K: …an initial 20-40%. • SmartServ, DXP's integrated service pump solution. It provides a more efficient way to manage the entire life cycle of pumping systems and rotating equipment. Our SmartSolutions programs listed above help customers to cut product costs, improve supply chain efficiencies and obtain expert…
• GWW (W.W. GRAINGER, INC.)
• FY2025 10-K: …through its KeepStock® program which provides onsite industry expertise, flexible storage solutions and intuitive customer tools powered by proprietary processes and technology. 6 In the Endless Assortment segment, orders are placed primarily through online channels. Zoro leverages the High-Touch Solution N.A.'s DC…
• FY2025 10-K: …healthcare benefit plan that provides coverage for certain U.S. team mem bers. C overed team members become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as…
• WCC (WESCO International, Inc.)
• FY2025 10-K: …agreements with more than 450 preferred suppliers and approximately 68% of our purchases are made pursuant to these arrangements. We offer a wide range of sustainable products from the world's leading manufacturers and help our customers determine solutions to meet their sustainability goals. Key categories include…
• FY2025 10-K: …connectivity, power systems, wireless technologies, connected devices (IoT), and related products to enable seamless connectivity and communications in commercial buildings, hyperscale data centers, multi-tenant data centers, and cloud-based platforms. In the security business, CSS offers on-premise, cloud or hybrid…
• DNOW (DNOW INC.)
• FY2025 10-K: …for customer requirements, weld segments of pipe to the intake/outtake openings of large pipeline valves, add extensions to the valve controls while installing actuators to the valve, hydrotest the valves, paint or coat the valves, x-ray the welds and deliver complete valve/actuation assemblies to our customers for…
• FY2025 10-K: …and gas through the separation process and prior to distribution to the midstream sector. We offer a variety of fluid movement solutions ranging from standard to engineered pump packages and a wide variety of ASME fabricated process and production equipment to remove water and contaminants prior to the midstream…
• RS (RELIANCE, INC.)
• FY2025 10-K: …unfavorable metals demand and/or raw material pricing. ​ ● Industry Leader According to the MSCI reporting of industry tons sold in the U.S., our 2025 tons sold from our U.S. locations represented approximately 17% of the total tons sold by the U.S. metals service center industry compared to approximately 15% for…
• FY2025 10-K: …reliable and timely delivery, flexible minimum order size, and quality control. Many customers deal exclusively with service centers because the quantities of metal products that they purchase are smaller than the minimum order sizes specified by mills or because those customers require intermittent deliveries over…
• RYZ (Ryerson Holding Corp)
• FY2025 10-K: …closing the gap between metal producers' supply and end-users' demand. By aggregating end-users' demand and purchasing metal in bulk to take advantage of economies of scale, metals service centers may purchase, process, and deliver metal to end‑users in a more efficient and cost‑effective manner than the end‑user may…
• FY2025 10-K: …and coil products; stainless steel sheet, plate, bar, and coil; aluminum sheet, plate, and coil; pipe, tube, bar, valves and fittings, tin plate and metal-intensive end-use products. Olympic Steel provides metals processing and distribution services for a wide range of customers. The combination of the two companies…
• CNM (Core & Main, Inc.)
• FY2025 10-K: …equipment. • On September 9, 2024, the Company acquired certain assets and assumed certain liabilities of GroGreen Solutions Georgia, LLC ("GroGreen"). GroGreen has four locations and is a provider of geosynthetics products. • On August 12, 2024, the Company acquired certain assets and assumed certain liabilities of…
• FY2025 10-K: …30, 2022 (File No. 001-40650)). 10.1.1 Credit Agreement, dated as of August 1, 2017, by and among Core & Main LP, as borrower, Citibank, N.A., as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (incorporated by reference to Exhibit 10.1.1 to…

Engineered Solutions (reported)

• DXPE (DXP Enterprises, Inc.)
• FY2025 10-K: …to lower total purchasing costs, improve inventory management, ensure consistently high levels of customer service and enhance purchasing power. This focus on fewer suppliers has led to consolidation within the fragmented industrial distribution industry. • Customized Integrated Service. As industrial customers focus…
• FY2025 10-K: …through a continuum of customized and efficient MRO solutions. We also provide services such as field safety supervision, in-house and field repair, and predictive maintenance. A majority of our SC segment sales are derived from customer purchase orders for products. Sales are directly solicited from customers by our…
• DNOW (DNOW INC.)
• FY2025 10-K: …through approximately 300 strategic locations including regional distribution centers, super centers, branches and corporate offices. Our customers use our supply chain solutions, PVF, pumps, fabricated equipment and other infrastructure products that we supply in mission critical process applications that require us…
• FY2025 10-K: …point of issue technology, project management, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our Enterprise Resource Planning ("ERP") systems and other technologies to streamline our customers' purchasing process, from requisition to procurement to…
• MSM (MSC INDUSTRIAL DIRECT CO., INC.)
• FY2025 10-K: …through inventory optimization and reduced tooling and labor costs. All of our digital solutions function directly as front-end ordering systems for our e-Portal-based customers. These solutions take advantage of advanced technologies built upon the latest innovations in E-commerce and wireless and cloud-based…
• FY2025 10-K: …of which solution is utilized. Our vending solutions include different kinds of machines, such as storage lockers or carousels, which can stand alone or be combined with other machines. Our vending machines use network or web-based software to enable customers to gain inventory visibility, save time and drive…
• WCC (WESCO International, Inc.)
• FY2025 10-K: …communications projects. Specific applications include projects for data centers, hospitals, public transit, waste water treatment facilities, EV charging stations, and renewable and solar power plants. OEM customers require products used in the manufacturing of automotive, industrial, medical, transportation,…
• FY2025 10-K: …and cable. Customized Solutions. Our customers have unique business models, challenges and priorities. Our dedicated technical experts have extensive experience and product and services knowledge that enable them to provide solutions tailored to the various needs of our customers. With specialized industry knowledge…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.