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3 Reasons ALG is Risky and 1 Stock to Buy Instead

ALG Cover Image

Over the past six months, Alamo has been a great trade, beating the S&P 500 by 14.4%. Its stock price has climbed to $216.45, representing a healthy 17.5% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Alamo, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Alamo Will Underperform?

Despite the momentum, we're swiping left on Alamo for now. Here are three reasons why we avoid ALG and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Alamo’s sales grew at a mediocre 6.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector. Alamo Quarterly Revenue

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Alamo’s revenue to rise by 2.8%. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

3. EPS Growth Has Stalled Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Alamo’s EPS was flat over the last two years, just like its revenue. This performance was underwhelming across the board.

Alamo Trailing 12-Month EPS (Non-GAAP)

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Alamo, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 21.2× forward P/E (or $216.45 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Like More Than Alamo

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