Is APD A Good Stock To Buy?

Air Products & Chemicals, Inc. (NYSE:APD) is an industrial gas and chemical company based in Pennsylvania but with a global client base. The company has a long and tenured history; it was founded in 1940.

As the market deflated, APD stock fell too. But the company quickly rebounded from the initial market crisis to reach an all-time high share value of $327.89 as news of a more “normal” economic climate made headlines.

So, is APD a good stock to buy?

In the plus column, analysts’ top line estimates were met in its most recent quarter, and existing shareholders seem sure the company will remain an important part of the economic recovery.

Despite this, shareholder sentiment has twice shifted away from quarantine-related stocks as they salivated for cheap buys in industries that were doomed to struggle until the economy reopens.

Let’s clear the air about APD to determine if it can increase its value over the coming years.

What Does Air Products & Chemicals Do?

Unlike a traditional gas company you may think of as using crude oil, Air Products & Chemicals creates atmospheric and process gases, along with any related equipment. These chemicals are used in manufacturing of crude oil and metals, along with food, beverages, and electronics.

It’s also a major supplier of equipment and technology for processing natural gas deposits. This means it’s selling tools to its competitors, an enviable business model few can replicate.

Air Products & Chemical’s five many revenue industrial gas segments are:

1.     Americas

2.     Europe

3.     Middle East

4.     Africa (EMEA)

5.     Asia

The company’s global corporate operations are widespread thanks to its robust supply chain. This includes liquid hydrogen, which seems more promising than all-electric as a suitable replacement for petrochemicals in at least industrial applications.

All the eggs aren’t confined to one basket. The company has multiple revenue streams. It also creates chemicals used in cannabis extractions, soda carbonations, and more. While its products are surely worth buying, the question at hand is whether its Air Products stock is a good investment.

Is APD A Good Stock To Buy?

APD stock was hit by the overall market crash, slamming share prices to a low of $167.43 before resuming a positive trajectory to hit all-time highs over $300 per share.

The company had a market capitalization over $60 billion during the shortened Thanksgiving week, and still has room to grow. The question is how long that growth will take.

The company has paid a consistently higher quarterly dividend throughout most the past decade, including during recessionary periods. Its 2020 payout was $5.36 per share, and it declared its 2021 dividend in mid-November.

If you are holding APD shares on the next record date, you’ll receive a $1.34 per-share quarterly payment a few weeks later. This represents a 1.95 percent annual dividend yield on a P/E ratio of around 33x.

Many bullish investors believe the company has plenty of room to growth, and it already proved itself resilient during the pandemic. A burgeoning economy could lead to more demand for the company’s products, even though it’s so deep down the supply chain.

For income oriented investors, the dividend is reasonable but not stellar. Share price movements could easily offset the annual dividend payment so identifying risks to the current APD share price is crucial.

Air Products & Chemicals Stock Risks

Air Products & Chemicals already took several big hits that dropped it well below the $300 mark. Late in the game investors who jumped in at the wrong time are already soured on the stock.

Matters weren’t helped when the company’s adjusted fourth-quarter earnings; they fell $0.02 per share below forecasted expectations.

That was the third-straight quarter APD failed to meet earnings expectations. That doesn’t mean the company’s financials were a disaster by any stretch of the imagination – it still generated $2.32 billion in revenue for the quarter. And it has never missed earnings by more than two percent.

Still, a worry for bearish investors is that much of the company’s future growth hinges on hydrogen-based energy being adopted on a widespread scale. Until this happens, its growth potential is limited. While it’s almost guaranteed to happen eventually, its long-term prospects are dampened by enthusiasm over its short-term prospects.

And there are also competitors to consider.

Who Competes With Air Products & Chemicals?

Although operating in a niche resource category, Air Products & Chemicals isn’t alone in its market. It has plenty of competitors, like Airgas, Praxair, The Linde Group, and Air Liquide. These companies have deposits of the same raw materials, along with their own versions of the necessary tools to use them.

For them to gain value, these companies may need to cannibalize each other or seek buyouts from larger companies. At a stretch, a major car company, like Tesla, could even become a potential competitor. And major oil companies could start to take issue with it expanding into their territory.

Another issue Air Products faces is running out of the raw materials. It needs to create a steady stream with good margins, which may be hard in the upcoming years. There’s no guarantee the company will outperform the market over the next year.

Is APD A Good Stock To Buy? The Bottom Line

Air Products & Chemicals is an industrial chemical and gas company that’s vertically integrated with a global footprint.

It crashed along with the rest of the market before rebounding to a record high market capitalization. However, the company has disappointed shareholders which has caused investor sentiment to shift towards other rivals.

That dip in share price offers a second chance to keen investors to get on board for a potential bargain and the next dividend payment. Timing of entry will be crucial or you could lose more in price than you gain in dividend payments over next year. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.