Alto Ingredients Inc. (ALTO) in Sacramento, Calif., manufactures and distributes specialty alcohols and essential ingredients in the United States. The company operates through two segments: Production and Marketing. ALTO also provides transportation, storage, and delivery services through third-party service partners. It owns and runs more than seven ethanol-producing plants in the United States.
Its shares have gained 34.9% in price over the past year and 12.1% over the past month to close yesterday's trading session at $6.38.
The company is reinvesting extensively in its business, which has resulted in exceptional profit growth at a high rate of return. Given that profitability influences long-term share prices, if the company continues to expand its earnings at its current rate, a favorable impact on its share price could be reasonably expected.
Here is what could shape ALTO's performance in the near term:
Positive Development
Last month, ALTO's plant in Pekin, Illinois, achieved ICH Q7 and EXCiPACT Good Manufacturing Practices (GMP) certification. According to ICH Q7, which is an internationally recognized standard, Alto Ingredients' specialty alcohol is approved for use as an active medicinal ingredient.
Strategic Acquisition
In January, ALTO acquired Eagle Alcohol Company LLC, a renowned specialty alcohol distributor based in St. Louis, Mo. After accounting for expected synergies, the acquisition is projected to be immediately accretive and to increase its adjusted EBITDA by $7 million - $9 million per year in 2023 and beyond.
Robust Financials
During its fourth quarter ended Dec. 31, 2021, ALTO's net sales increased 128.3% year-over-year to $385.49 million. Its operating income came in at $37.28 million, compared to a $14.23 million operating loss in the prior-year quarter. The company reported $36.15 million in net income, compared to a $20.19 million net loss in the fourth quarter of 2020. Its EPS amounted to $0.49.
Impressive Growth Prospects
The Street expects ALTO's revenues to rise 13.2% year-over-year to $1.37 billion in its fiscal 2022. In addition, ALTO's EPS is expected to rise at a 20% CAGR over the next five years. Furthermore, its EPS is expected to grow 86.3% from its year-ago value to $0.95 in its fiscal 2023.
Discounted Valuation
In terms of forward Price/Sales, the stock is currently trading at 0.35x, which is 77.9% lower than the 1.6x industry average. Also, its 0.36x forward EV/Sales is 83.3% lower than the 2.18x industry average. And ALTO's 1.39x forward Price/Book is 34.4% lower than the 2.11x industry average.
Consensus Rating and Price Target Indicate Potential Upside
Of the two Wall Street analysts that rated ALTO, one rated it Buy, and one rated it Hold. The 12-month median price target of $25.82 indicates a 304.7% potential upside. The price targets range from a low of $16.00 to a high of $35.63.
POWR Ratings Reflect Solid Prospects
ALTO has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ALTO has an A grade for Growth and a B for Value. ALTO's solid earnings and revenue growth potential is consistent with the Growth grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.
Among 96 stocks in the B-rated Energy – Oil & Gas industry, ALTO is ranked #22.
Beyond what I stated above, we have graded ALTO for Sentiment, Stability, Quality, and Momentum. Get all ALTO ratings here.
Bottom Line
The company's continued focus on long-term profitable growth could help it improve its position in this space. Furthermore, given its strategic partnerships to expand its portfolio, we believe ALTO is a high-quality company that might be a great addition to one’s portfolio now.
How Does Alto Ingredients Inc. (ALTO) Stack Up Against its Peers?
ALTO has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Energy – Oil & Gas industry with A (Strong Buy) ratings: Unit Corp. (UNTC), Baytex Energy Corp. (BTEGF), and Athabasca Oil Corp. (ATHOF).
ALTO shares rose $0.03 (+0.47%) in premarket trading Thursday. Year-to-date, ALTO has gained 32.64%, versus a -6.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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