Digital Leaders Worth 50% More than Laggards
Launch of Digital Leaders and Laggards Indices in B2B Distribution
Happy spring forward everyone,
We created a Leaders and Laggards index of billion-dollar, publicly traded B2B distributors. We have representation across all the main verticals, except for healthcare – since those distributors do much more than sell supplies. However, building materials, industrial, food, auto and other verticals are well represented in both the Leaders and Laggards’ indices.
The criteria for inclusion is a proprietary ranking of digital innovation – or lack thereof. We used a mixture of publicly disclosed information like digital sales, digital investments, R&D spend, managements’ stated priorities as it relates to innovation as well as Applico’s first-party knowledge. You may be wondering if we’re going to disclose who’s in the indices – and the answer is … no!
I’m sure the laggards just took a sigh of relief and the leaders… well you probably already know who you are.
Direct correlation in the public markets between B2B distributors who invest in digital and their valuation by investors
These indices aren’t meant to draw specific scrutiny or praise to any individual B2B distributor – instead, it’s meant to highlight that there is a direct correlation in the public markets between B2B distributors who invest in digital & innovation and the performance of their stock price and underlying valuation.
Leaders’ EV/EBITDA 4.0X Greater than Laggards’
Over the past 5 years, you can see the differential in the EV/EBITDA ratio between our leaders and laggards cohorts. Peaking in late 2020 and early ’21 at a differential of over 11x, and being almost even 2019. On average, the differential is about 4.0X.
B2B Distributors Beat the DJIA and S&P 500
Both cohorts, leaders and laggards, beat the Dow Jones and S&P 500 indices over the past 5 years. The end of ’23 saw a 50% increase in the leaders stock price; however, they were already on pace to be ahead of the laggards by about 15% prior to the dramatic shift.
A few of the companies in our leaders cohort saw a surge in their stock price in the past 6 months. Here’s an excerpt from an equity analyst on why one of the stock’s in our leader cohort has outperformed:
“Company is investing in non-pandemic product inventory and partnering with suppliers to mitigate supply-related challenges, inbound lead time challenges and any possible cost increases. The company is also focused on improving the end-to-end customer experience by investing in its e-commerce and digital capabilities and executing improvement initiatives within its supply chain.
The company continues to develop online capabilities that promote a personalized, relevant and effortless experience for each customer through its website, eProcurement connections and mobile applications.”
Distributors are an Inflation Hedge
We’ve talked about this previously in our B2B distribution rundown that B2B distributors are an inflation hedge.