The stock market performance of publicly traded distributors so far this year has been uneven. Smaller companies and those heavily reliant on the housing market generally did poorly. But larger distributors, especially in sectors like maintenance, repair and operations (MRO), fared quite well.

While volatility has been the economic theme of 2025, largely due to the Trump Administration’s on-again, off-again tariff policies, that volatility can make distributors appealing investment options.

“Distributors remain an attractive place for investors to put their money because they are flexible, they benefit from inflation and they generally don’t have a lot of debt,” says Ryan Merkel, co-head, Industrials, at investment bank and wealth management firm William Blair & Co. LLC.

He says distributors have flexibility because, unlike manufacturers, they don’t have to tie up capital in factories or spend vast sums on research and development. What’s more, employees and physical locations account for most of their costs, and distributors can fairly quickly adjust their cost structures to align with demand.

Meanwhile, the inventory sitting in their warehouses becomes more valuable in a period when prices are rising, as they are today, largely due to tariffs.

Those factors stand to benefit privately held distributors and wholesalers, as well as publicly held companies. While uncertainty is slowing down the pace of acquisitions of smaller, private companies, analysts say underlying trends point to more deals in the future. That could allow the owners of small distributors to sell their companies at attractive prices, if those companies can demonstrate they’re growing and profitable.

How distributor stocks fared early in 2025

Overall, the performance of distributor stocks has been mixed so far in 2025.

An analysis of the 86 publicly traded distributors currently ranked in the Distribution Strategy Group’s Public Distributor Index shows the median change in stock price for those companies from Jan. 1 through the end of May was a decline of 1.2%, with just over half the companies’ shares falling in price. During that same 5-month period, the S&P 500, representative of larger publicly traded companies, was essentially flat, with a median price increase of 0.14%.

But there are big differences in the performance of distributor stocks based on their size and what they sell.

For the 30 distributors in the DSG index with a market capitalization of at least $6.5 billion, roughly the minimum for inclusion in the S&P 500, their median share price increase was 4.86%, putting them well ahead of the broader market. But the 56 smaller distributors in the DSG index registered a median decline of 4.85% in share price, significantly trailing the market.

It’s not surprising that bigger distributors would over-perform during this period when higher tariff policies threaten  to raise the prices distributors pay for their goods, says Alex Chausovsky, director of analytics and consulting for Bundy Group, an investment bank. “Larger distributors have a greater ability to push back on prices from their manufacturer suppliers than small distributors do,” he says.

He adds that a bigger company with a large customer base also can adjust prices strategically, such as by negotiating a partial pass-through of tariff increases with their best customers while increasing prices to fully cover added tariff costs for smaller or one-time buyers.

Merkel says periods of volatility and high interest rates often lead investors to seek stocks viewed as safe, and that generally means bigger companies. “Small caps are more risky,” he says. “They often have more debt and weaker pricing power. I’m not surprised at all that small caps in distribution and in the broader market have performed the worst.”

Nonetheless, he says, in a volatile period like today distributors can be attractive to investors. “Many distributors are self-funding and have good cash flow, and many have no debt. At times like this that can be very advantageous,” he says.

That’s borne out the looking at the price/earnings ratios of distributors in various sectors, which are generally in line with that of the S&P 500, an index that includes categories like technology and healthcare that often boast high P/E ratios. The exception is distributors of computers and electronics, part of a sector that imports lots of goods from China and the rest of Asia and thus is vulnerable to tariff increases.

Big variation by product sector

Besides the widely varied performance of distributors by size, there have also been big differences based on category. Among the categories that have done the worst, Merkel says, are those tied to the housing market, which has been slowed by high interest rates, and the consumer discretionary sector. In particular, he says, companies that cater to lower-income consumers face headwinds as those shoppers cut back on spending.

Companies hit hard by tariffs have also struggled. One example is Hillman Solutions Corp., a distributor of hardware used by contractors, do-it-yourselfers and farmers, which currently sources a third of its products from China. CEO Jon Michael Adinolfi told investors in April he expects that China exposure to be reduced to 20% by the end of the year. The company’s stock price is down nearly 30% for the year.

A distributor that suffered from its focus on the housing market is GMS Inc., which sells wallboard and other building products. Its stock price was down nearly 12% through May 2025.

But, illustrating the ability of distributors to cut costs rapidly, GMS’s executives announced recent plans to reduce expenses by $55 million during the current fiscal year, roughly 4% of the company’s annual $1.2 billion in SG&A [Selling, General & Administrative], the bulk of its operating costs. Those savings would come from closing four of its roughly 400 locations, reducing employee headcount and from technology deployments.

But the share price of GMS turned around suddenly last week, long before those cost reductions could take hold, when QXO Inc. announced a $5 billion bid to acquire GMS. QXO, which has raised roughly $6 billion in capital to acquire distributors in fragmented markets, earlier in the year acquired Beacon Roofing Supply for $11 billion. QXO executives have said they foresee a rebound in the U.S. housing market, where they estimate there is a demand for an additional 4 million homes.

GMS’s stock price jumped again Friday when it was reported that Home Depot would also seek to acquire GMS, setting off a potential bidding war. By late morning the GMS stock price was up over 21% from the first of the year and more than 36% since the end of May.

It wasn’t only acquisition targets that saw their share prices increase in the first half of 2025. Merkel points out that MRO distributors like Fastenal Co. and W.W. Grainger Inc. outperformed the market.

Another company that’s fared well is Ferguson Enterprises Inc., a distributor of plumbing and HVAC supplies, whose shares are up more than 22% this year. Most of that increase came this month after Ferguson reported better-than-expected third-quarter results, driven in part by heavy investment in computer data centers to handle the surging demand for AI processing capacity.

Can distributors pass on tariff-driven price increases?

But Ferguson illustrates another challenge facing distributors: whether raising prices to cover tariff-driven supplier price increases will reduce demand.

Ferguson sources products from 36,000 suppliers in 31 countries, including significant imports from China in certain categories, and has seen many suppliers raise prices. Company executives said this month that two-thirds of its branded suppliers, which account for 90% of purchases, have raised their prices this year, typically by mid-single-digit percentages.

Chief financial officer William Brundage noted that many commodities have been falling in price over the last year and a half, somewhat offsetting the effect of tariffs. He predicted a general industry trend towards higher prices this year, but added, “it still remains very much a live action game and very uncertain at this point,” according to a transcript provided by Seeking Alpha.

Merkel says many distributors have said in recent months that they are passing through supplier price increases to customers, generally in the range of 3-10%. How much passing on those price increases will reduce customer purchases “is the million-dollar question,” he says.

“We all believe there is going to be a demand impact,” Merkel says, “but how severe it is, it’s hard to say.”

A ‘choppy’ outlook for distributors

Indeed, a recurring them in the recent presentations by executives of publicly traded distributors has been how hard it is to predict the future, given uncertainty about tariffs, interest rates, geopolitical tensions, and the possibility of labor shortages worsening if many immigrant workers are deported.

Ryan Paper, president and CEO of Xpel Inc., a distributor of films and coatings to the automotive industry, cited focused on tariff-related uncertainty last month in disclosing that the company would not provide earnings guidance for the coming period. “It’s impossible to predict what’s going to happen in the coming quarters with all the tariff noise,” Paper said, according to a transcript from Seeking Alpha. “So, we won’t be providing any guidance for the year. It’s hard to say what the near-term impacts will be.”

Merkel foresees “a very choppy demand environment” for the remainder of 2025. “Those distributors that have guided conservatively, have clean balance sheets and are tied to more recurring revenue streams are going to perform a lot better than distributors that serve market like new construction that are definitely weaker,” he says.

If interest rates fall in 2026, he says, that could lead to an economic upturn that would be good news for distributors. “Distributors tend to perform well early in the cycle because they see the demand uplift first,” he says. “As we come out of the slowdown, I think distributors will perform well in the early part of recovery cycle, which I hope will be in 2026.”

What it means for privately held distributors

The uncertain economic climate impacts not just the stock prices of publicly traded distributors but also the sales, profits and potential for an attractive buyout offer for the privately held companies that make up the vast majority of the more than 400,000 U.S. wholesalers and distributors.

There have been some big acquisitions of distributors recently, notably QXO’s acquisition of Beacon Roofing Supply and Home Depot buying SRS Distribution for $18.25 billion last year. But volatility has deterred some potential acquirers, such as hardware distributor Hillman Solutions.

Hillman has made several acquisitions over the years and last year acquired two distribution companies, paying $23.8 million for Koch Industries and $34.1 million for Intex DIY Inc. But it’s holding off any further deals for now, says CEO Adinolfi.

“Until tariffs settle down and we’ve kind of gotten through the first cycle of understanding pricing and how that plays out, you’re not going to see us actively doing any acquisitions,” Adinolfi told investment analysts on an earnings call in April, according to a Seeking Alpha transcript.

But private equity investors remain interested in backing larger distributors that buy up smaller companies, seeking to create scale and deploy advanced technology to improve results, Merkel says. “There’s a lot of interest in acquiring private distribution companies by many private equity clients,” he says. “They love the buy and build strategy.” He says that’s particularly evident in the building products arena, citing the deals for Beacon Roofing and SRS Distribution.

Merkel says buyers typically value smaller distribution companies at between seven to nine times their annual EBITDA [earnings before interest, taxes, distribution and amortization], a common way of measuring the profitability of private companies.

In fact, Chausovsky of investment bank Bundy Group, points to two reasons why there may be more deals for privately held distributors in the near future.

For one, stock market volatility leads investors to seek attractive returns in other assets, which includes acquiring private companies. For another, private equity companies have a lot of money on hand—$1.2 trillion in capital ready to spend, according to Bain & Co.

“There’s a lot of money chasing too few companies,” Chausovsky says.

He says investors—private equity firms, strategic investors like Home Depot buying companies in their industries and roll-up firms like QXO largely funded by private equity—are looking for companies with a track record of revenue growth and profitability, a good management team and some scale. Investors especially like to see evidence of recurring revenue streams as a result of customers coming back repeatedly to buy, Chausovsky.

In other words, distributors that want to be attractive to potential buyers need to run a good business: increasing sales and profits and providing the kind of value and service that keeps customers coming back. If you do that, even in uncertain times like these, the value of your company will steadily increase.