The stock of Alpha Pro Tech (AMEX:APT, 30-year Financials) is believed to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $9.83 per share and the market cap of $133.7 million, Alpha Pro Tech stock gives every indication of being modestly overvalued. GF Value for Alpha Pro Tech is shown in the chart below.
Because Alpha Pro Tech is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 35.8% over the past three years and is estimated to grow 20.80% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Alpha Pro Tech has a cash-to-debt ratio of 6.50, which ranks better than 82% of the companies in Construction industry. Based on this, GuruFocus ranks Alpha Pro Tech's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Alpha Pro Tech over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Alpha Pro Tech has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $102.7 million and earnings of $1.96 a share. Its operating margin is 30.75%, which ranks better than 97% of the companies in Construction industry. Overall, GuruFocus ranks the profitability of Alpha Pro Tech at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Alpha Pro Tech over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Alpha Pro Tech is 35.8%, which ranks better than 95% of the companies in Construction industry. The 3-year average EBITDA growth is 114.9%, which ranks better than 99% of the companies in Construction industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Alpha Pro Tech's return on invested capital is 77.60, and its cost of capital is -8.76. The historical ROIC vs WACC comparison of Alpha Pro Tech is shown below:
To conclude, Alpha Pro Tech (AMEX:APT, 30-year Financials) stock gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 99% of the companies in Construction industry. To learn more about Alpha Pro Tech stock, you can check out its 30-year Financials here.
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