Although Alta (currently trading at $6.03 per share) has gained 8.8% over the last six months, it has trailed the S&P 500’s 16.2% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy Alta, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Alta Will Underperform?
We’re passing on Alta for now. Here are three reasons why ALTG doesn’t excite us, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Alta’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 2.6% over the last two years. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Alta’s earnings losses deepened over the last five years as its EPS dropped 34.6% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Alta’s low margin of safety could leave its stock price susceptible to large downswings.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Alta’s $839.5 million of debt exceeds the $20.9 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $159 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Alta could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Alta can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Alta doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 5.7× forward EV-to-EBITDA (or $6.03 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Alta
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