Over the past six months, Alta’s stock price fell to $6.12. Shareholders have lost 7.3% of their capital, which is disappointing considering the S&P 500 has climbed by 1.7%. 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? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Alta Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why ALTG doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Alta’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.8% over the last two years was well below its five-year trend. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Alta’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.6%, meaning it lit $1.61 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Alta burned through $15.5 million of cash over the last year, and its $864.4 million of debt exceeds the $11.1 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Alta’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Alta until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Alta falls short of our quality standards. Following the recent decline, the stock trades at 1.1× forward EV-to-EBITDA (or $6.12 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Alta
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