When the novel coronavirus began to gain traction, shares of Alpha Pro Tech (NYSEAMERICAN:APT) ripped higher. Shares were trading near $5 before the market’s February selloff, but rocketed to more than $40 by the end of the month. Should investors be looking at APT stock again if a second wave is coming?
That’s the big fear right now. If a second wave of Covid-19 gains traction domestically and abroad, world leaders will face a serious conundrum. Do they go back on lockdown, risking further economic consequences and unrest, or do they remain open and risk a rise in deaths and overwhelming the healthcare system?
This risk is why we’ve seen profit taking in the stock market lately, which helped spark a near-7% one-day decline in the Dow Jones earlier this month. For APT stock though, a spike in coronavirus cases could lead to a rising stock price.
That doesn’t make it a buy, though.
Alpha Pro Tech and Covid-19
We’ve seen select biotech stocks explode at the onset of coronavirus, as investors speculate about a possible vaccine. They are buying and hoping these companies come up with the cure, anticipating a windfall of profits from the stock price.
APT, Lakeland Industries (NASDAQ:LAKE) and other so-called coronavirus stocks are different, though. In the case of Alpha Pro Tech, the company “is in the business of protecting people, products and environments.” Further:
“Our products are classified into three business segments. Protective Apparel featuring a complete head to toe protective apparel line, consisting of shoe covers, coveralls, bouffant caps, gowns, frocks and lab coats; Infection Control consisting of a full line of face masks and eye shields, and Building Products consisting of house wrap and synthetic roof underlayment.”
In a world where scientists and doctors are as busy as ever and as employees and workers are forced to wear protective gear, APT stock seems like a sensible play.
But all these pandemic plays are the same. They are good for short-squeezes higher and potential short-term bursts to the upside. But as soon we return to normalcy, these businesses will return to normalcy too and the stocks will go down.
In other words, without an elevated state of demand for its products, the stock will not be able to maintain elevated levels. That’s unlike what we see in a company like Netflix (NASDAQ:NFLX) for instance.
The company saw a robust spike in signups due to Covid-19. In fact, even with expectations climbing, Netflix essentially doubled analysts’ subscriber estimate. Once the coronavirus is in the rearview mirror, demand will fall for Alpha Pro Tech and others. However, while some of the new subscribers of Netflix will cancel, most will stay, and thus, the stock has staying power.
Digging Deeper on APT Stock
For the last four full fiscal years, Alpha Pro Tech has had essentially no revenue growth. The company has generated sales between $44 million and $46.6 million. While incredibly consistent, this lack of growth does little to get me interested.
On the net income side, it’s a similar tale. APT stock has generated profit in the range of $2.63 million and $3.62 million during that timeframe. But with little to no growth, what’s there to be excited about? It certainly isn’t the 6.4% profit margin APT generated in its most recent fiscal year.
On the plus side, the balance sheet is robust — with total assets of $38 million topping total liabilities of just $4.8 million — while APT stock is also cash flow positive. Of course, there’s very little growth in free cash flow, as to be expected, but at least it’s positive.
Alpha Pro Tech did see a spike in revenue in the most recent quarter, though. Sales of $18.1 million grew 47% year-over-year, while earnings before interest and taxes (EBIT) jumped nearly four-fold.
The company’s coming quarter (typically reported in early August) should be robust. But based on the last several years of business and the spike we’re seeing now, none of it seems sustainable once Covid-19 fades. I’m looking elsewhere as a result.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.