Over the past six months, Alta’s stock price fell to $6.92. Shareholders have lost 9.4% of their capital, which is disappointing considering the S&P 500 has climbed by 7.6%. This was partly driven by its softer quarterly results and 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? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Alta Will Underperform?

Despite the more favorable entry price, we're swiping left on Alta for now. Here are three reasons there are better opportunities than ALTG and a stock we'd rather own.

1. Lackluster Revenue Growth

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 shows its demand has slowed significantly as its annualized revenue growth of 1.1% 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 1.7%, meaning it lit $1.68 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 $22.8 million of cash over the last year, and its $873.5 million of debt exceeds the $14.1 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

We cheer for all companies making their customers lives easier, but in the case of Alta, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 6.4× forward EV-to-EBITDA (or $6.92 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. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Like More Than Alta

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