Is ABM Industries' Dislocated Share Price Creating a Long-Term Value Opportunity?

The stock of ABM Industries, a leading provider of facility solutions, has long been viewed as a value anomaly in the commercial services sector. Recent financial and valuation data suggest that the market may be underpricing the company's long-term potential, particularly in the context of broader industry trends. This analysis explores whether ABM's dislocated share price reflects a contrarian opportunity, focusing on its valuation metrics and margin recovery trajectory.

Contrarian Valuation: A Tale of Two Multiples

ABM Industries' valuation ratios stand in stark contrast to those of its peers. As of Q1 2025, the company's enterprise value-to-EBITDA (EV/EBITDA) ratio is approximately 14.06x, significantly below the 15.71x industry average for the commercial services sector as reported on NYU's Stern page. Similarly, its price-to-book (P/B) ratio of 1.64 is far lower than the sector's 5.94 average according to data from Stern. These discrepancies suggest that ABM is trading at a discount relative to both historical norms and industry benchmarks.

Such dislocation may stem from short-term concerns about margin pressures. In fiscal 2024, ABM's operating margin stood at 3.75%, while its net margin was a modest 1.34% according to marketbeat data. However, these figures mask a recent uptick in profitability. Q1 2025 operating income rose to $78 million, more than doubling from $37 million in Q3 2024. This improvement, coupled with a 10% year-over-year revenue increase in Q1 2025, hints at early signs of margin normalization.

Margin Recovery: A Path to Re-rating

The potential for margin expansion is critical to ABM's valuation case. The company's operating leverage-evidenced by its ability to grow operating income by 110% in Q1 2025 despite only a 5.8% sequential revenue increase-suggests that cost discipline and pricing power could drive profitability higher. If ABM can sustain its Q1 2025 operating margin of 3.69% (calculated from $78 million operating income on $2,115 million revenue) and expand it further, its EV/EBITDA multiple could converge toward the sector average.

Moreover, ABM's low P/B ratio of 1.64 implies that the market is valuing its tangible assets at a fraction of their sector peers. This could reflect skepticism about the company's intangible value, such as its contract base or brand strength. Yet, in an industry where recurring revenue and client retention are key, such skepticism may be misplaced.

Industry Dynamics and M&A Premiums

The commercial services sector is experiencing heightened M&A activity, with private equity buyers paying EV/EBITDA multiples that often exceed corporate averages. This trend underscores a structural premium for well-positioned operators like ABM. If the company's margins stabilize and its valuation multiple expands to reflect its sector peers, its enterprise value could rise from its current $4.526 billion as of September 2025 to a level closer to $5.5 billion-a 21% increase-assuming a 15.71x multiple and maintaining its $321.8 million TTM EBITDA according to valuation data.

Risks and Caveats

Critics may argue that ABM's low margins reflect structural challenges, such as its exposure to low-margin contracts or competitive pricing pressures. Additionally, the company's leverage-while not explicitly detailed in the data-could constrain its ability to invest in growth. However, the recent acceleration in operating income suggests that management is addressing these issues.

Conclusion: A Case for Patience

ABM Industries' dislocated valuation appears to reflect a market that is underestimating its margin recovery potential and long-term value. While the company's current EV/EBITDA and P/B ratios are below sector averages, they also present a margin of safety for investors willing to bet on its ability to normalize profitability. In a sector where private equity buyers are willing to pay a premium, ABM's undervaluation may not persist indefinitely. For contrarian investors, the question is not whether ABM is cheap, but whether it is cheap enough to justify the risk of a prolonged correction.