APi Group (APG): A Bull Case Theory
A team of workers wearing white hardhani and safety goggles assembling a complex HVAC system.
API Group (APG) has seen significant growth since being pitched last November, with the stock up about 43% and 55% from the cost basis of $32.75 per share. The company continues to improve incrementally, raising financial targets and returning cash to shareholders. APG is a business services company focused on acquiring and growing compliance-driven testing, inspection, and service businesses, with a strong presence in fire safety, elevators, escalators, and security system services. The company's inspection-led model has led to impressive branch-level improvements, with EBITDA margin growth from 13% in 2021 to 17% currently, aiming for 20% in North America and 18% internationally.
The company has delivered on its previous targets, including a 13% EBITDA margin and 55% of revenue from Inspection, Service and Monitoring, with 75% free cash flow conversion. New targets have been set, including $10 billion in revenue by 2028, 16% EBITDA margin, and 60+ % of revenue from Inspection Service and Monitoring. To achieve $10.4 billion in revenue, APG plans to focus on $1.4 billion in organic growth, $1 billion from smaller acquisitions, and $1 billion from one or two large platform acquisitions. The company aims to produce $3 billion in cumulative adjusted free cash flow through 2028, with potential for $4 billion.
Valuation suggests a path to $75-80 per share by 2028, assuming $10 billion in revenue, 16% adjusted EBITDA margin, and a slight multiple contraction to 15x EV/EBITDA. With a potential buyback of $1 billion and net leverage of 2.7x, the stock offers 57% upside. While this may not seem exciting to some, APG is a well-run company with a strong track record, and the author considers adding to their position if the stock dips to $40-45 per share.
Previously we covered a on APi Group Corporation by Kairos Research in November 2024, which highlighted the company's inspection-led model, recurring revenue focus, and disciplined acquisitions in fire safety. The company's stock price has appreciated approximately 37% since our coverage. This is because the thesis played out as expected. Kairos Research shares an identical view but emphasizes on updated targets and long-term growth projections.
APG isn't on our list of the 30 Most Popular Stocks Among Hedge Funds. While we acknowledge the risk and potential of APG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
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