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Air Products Remains Overpriced

Patrick Doyle profile picture
Patrick Doyle


  • To be very clear, this is a well-run company that's serving a growing market. Also, management has obviously treated owners very well.
  • The problem I have with this investment now is the same as it was a few months ago. The shares remain stubbornly overpriced.
  • That said, the short options I recommended are even more compelling now, in spite of an erosion of time value and the fact that the shares have hardly budged.

The shares of Air Products and Chemicals Inc. (NYSE:APD) are down about 2% since I last wrote about the company 56 days ago, against a loss of 10.5% for the S&P 500 during the same period. Since the company has since released financial statements, I thought it would be worth looking in on the company again, in an effort to answer the question whether shares make sense to buy at these levels. For those who are too impatient to either read the title of this article, or read to the end, I’ll make the point in a sentence. The shares remain overpriced in my view, and for that reason I recommend continuing to avoid the name. That said, the put options I recommended selling in my previous article are much more attractive and I’ll be selling more of them. The premia are much higher, given general market jitters, in spite of the fact that the shares have barely budged, and there are 56 fewer days of time value. So, in sum, no to buying shares, yes to selling puts.

Financial Update

Over the past several years, Air Products has grown reasonably well in my view. Specifically, revenue has grown at a CAGR of 2.65%, and net income has grown at a CAGR of just over 6.5%.

I’m quite comfortable with the capital structure, in spite of the fact that about 65% of debt is due before 2024. First, the company has a large cash hoard on hand relative to the long-term debt which represents about 74% of total debt outstanding. Second, the interest rate on the debt is relatively low (~3.5%).

Management has treated shareholders reasonably well over the past several years, having returned just over $4.3 billion to owners in ever growing dividends. At the same time, the company has generated just under $481

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I will be selling more of the puts described in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

wildpitcher profile picture
Do you like it better at $214? I do.

Paper_stax profile picture
APD has been somewhat resilient during this crisis
Thank you for the great article, I own and may add on at a lower price.
Sold my ADP a few weeks pocketing a 150%+ gain. Why wait until it falls back to a more rational PE and then spend years waiting years for it to move back to current price. Used some of my gain to buy undervalued PRU with its 5.3% yield as I'm most interested in income. Without question will buy ADP again at a more reasonable price.
Chris Valley profile picture
Pro Put Seller tip: if you're gonna sell it again...after a dip... roll your original sale down and take the same premium. At the lower strike.

Taking more premium in times like this is best done at lower strikes.

half the time, you'll thank me later! The other half of the time- sell a call!
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