The stock of Alpha Pro Tech (AMEX:APT, 30-year Financials) appears to be fairly valued, 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 $8.68 per share and the market cap of $117.2 million, Alpha Pro Tech stock shows every sign of being fairly valued. GF Value for Alpha Pro Tech is shown in the chart below.
Because Alpha Pro Tech is fairly valued, the long-term return of its stock is likely to be close to the rate of 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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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Alpha Pro Tech has a cash-to-debt ratio of 6.50, which is better than 82% of the companies in Construction industry. The overall financial strength of Alpha Pro Tech is 7 out of 10, which indicates that the financial strength of Alpha Pro Tech is fair. This is the debt and cash of Alpha Pro Tech over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Alpha Pro Tech has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $102.7 million and earnings of $1.96 a share. Its operating margin of 30.75% better than 96% of the companies in Construction industry. Overall, GuruFocus ranks Alpha Pro Tech's profitability as strong. This is the revenue and net income of Alpha Pro Tech over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Alpha Pro Tech is 35.8%, which ranks better than 96% of the companies in Construction industry. The 3-year average EBITDA growth rate is 114.9%, which ranks better than 99% of the companies in Construction industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Alpha Pro Tech's ROIC was 77.60, while its WACC came in at -9.34. The historical ROIC vs WACC comparison of Alpha Pro Tech is shown below:
In summary, the stock of Alpha Pro Tech (AMEX:APT, 30-year Financials) is estimated to be fairly valued. 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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