APi (APG)

Safety and specialty services provider APi (NYSE:APG) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 7.4% year on year to $1.72 billion. The company’s full-year revenue guidance of $7.5 billion at the midpoint came in 1.5% above analysts’ estimates. Its non-GAAP profit of $0.37 per share was in line with analysts’ consensus estimates.

Company Overview

Started in 1926 as an insulation contractor, APi (NYSE:APG) provides life safety solutions and specialty services for buildings and infrastructure.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Companies that compete with APi include EMCOR (NYSE:EME), Comfort Systems USA (NYES:FIX), and private company Tyco.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, APi’s sales grew at an exceptional 13.5% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. APi’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.2% over the last two years was well below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, APi’s organic revenue averaged 1.1% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, APi reported year-on-year revenue growth of 7.4%, and its $1.72 billion of revenue exceeded Wall Street’s estimates by 4.7%.

Looking ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

APi’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 27.2% gross margin over the last five years. That means APi paid its suppliers a lot of money ($72.76 for every $100 in revenue) to run its business.

In Q1, APi produced a 31.5% gross profit margin, in line with the same quarter last year. Zooming out, APi’s full-year margin has been trending up over the past 12 months, increasing by 2.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

APi was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, APi’s operating margin rose by 4.7 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, APi generated an operating profit margin of 4.9%, down 1.4 percentage points year on year. Since APi’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

APi’s EPS grew at a decent 8.9% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 13.5% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into APi’s earnings quality to better understand the drivers of its performance. A five-year view shows APi has diluted its shareholders, growing its share count by 63.7%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For APi, its two-year annual EPS growth of 18% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, APi reported EPS at $0.37, up from $0.34 in the same quarter last year. This print beat analysts’ estimates by 2.6%. Over the next 12 months, Wall Street expects APi’s full-year EPS of $1.88 to grow 12.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

APi has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.1% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that APi’s margin dropped by 3.9 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

APi’s free cash flow clocked in at $50 million in Q1, equivalent to a 2.9% margin. This result was good as its margin was 3.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 3.1%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, APi’s ROIC averaged 4.3 percentage point increases over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

APi reported $460 million of cash and $3.04 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $911 million of EBITDA over the last 12 months, we view APi’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $65 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly APi blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 5.8% to $40 immediately after reporting.

Updated: May 22, 2025 at 11:12 PM EDT

Before deciding whether to buy APi or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

APi isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s expanding operating margin shows the business has become more efficient, the downside is its organic revenue growth has disappointed.

APi’s P/E ratio based on the next 12 months is 21.6x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $50.70 on the company (compared to the current share price of $46.43).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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