The stock of Alpha Pro Tech (AMEX:APT, 30-year Financials) shows every sign of being modestly undervalued, 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 $7.99 per share and the market cap of $106.5 million, Alpha Pro Tech stock gives every indication of being modestly undervalued. GF Value for Alpha Pro Tech is shown in the chart below.
Because Alpha Pro Tech is relatively undervalued, the long-term return of its stock is likely to be higher 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 5.31, which ranks better than 79% 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:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower 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 $107.7 million and earnings of $1.84 a share. Its operating margin is 29.45%, which ranks better than 96% of the companies in Construction industry. Overall, the profitability of Alpha Pro Tech is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Alpha Pro Tech over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Alpha Pro Tech's 3-year average revenue growth rate is better than 96% of the companies in Construction industry. Alpha Pro Tech's 3-year average EBITDA growth rate is 114.9%, which ranks better than 99% of the companies in Construction industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Alpha Pro Tech's ROIC is 65.51 while its WACC came in at -9.58. 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 believed to be modestly undervalued. 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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