Is It Time To Consider Buying Air Products and Chemicals, Inc. (NYSE:APD)?

Let's talk about the popular Air Products and Chemicals, Inc. (NYSE:APD). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. While good news for shareholders, the company has traded much higher in the past year. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Air Products and Chemicals’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Air Products and Chemicals

What Is Air Products and Chemicals Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Air Products and Chemicals’s ratio of 23.75x is trading slightly below its industry peers’ ratio of 25.61x, which means if you buy Air Products and Chemicals today, you’d be paying a decent price for it. And if you believe that Air Products and Chemicals should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. In addition to this, it seems like Air Products and Chemicals’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Air Products and Chemicals look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Air Products and Chemicals' earnings over the next few years are expected to increase by 41%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? APD’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at APD? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on APD, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for APD, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Air Products and Chemicals you should know about.

If you are no longer interested in Air Products and Chemicals, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.