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Alpha Pro Tech: Not A Good Long Even If Coronavirus Outbreak Worsens

Mar. 03, 2020 8:49 AM ETAlpha Pro Tech, Ltd. (APT) Stock31 Comments
Zero Sum Gamer profile picture
Zero Sum Gamer


  • Alpha Pro Tech has been a monster of a momentum stock.
  • After cooling off the past couple of trading days, the company is still overvalued.
  • Primed to fall 30% even under best case scenario.

Although the looming threat of a COVID-19 pandemic has demolished stocks all across the index last week, there were a few lucky beneficiaries for whom this crisis was their time to shine. One such stock was Alpha Pro Tech (NYSE:APT), a small company that produces personal protective gear for medical professionals. During a week when the S&P 500 dropped nearly -10%, APT rose +250%. Since the start of the outbreak, APT has transformed from a $45 million company into a $200 million company. At peak valuation, achieved last Friday morning, APT was worth a staggering half a billion dollars.

It has cooled off since then, ending Friday with an overall loss. Is the party over, the hype train dead? Investors (speculators?) who bought at the top are no doubt feeling the pain, but the worst may be yet to come. It's true that as a producer of personal protective equipment, APT is uniquely positioned to reap massive financial rewards from the coronavirus, but after running the numbers, the only conclusion I could draw is that even in an ideal scenario, APT is not worth the price it's trading for now.

Let's talk about the coronavirus for a moment...how bad can it get? The CDC's official position is that it's not a matter of if, but when the virus spreads to the US. Harvard epidemiologist Marc Lipsitch claims there's a possibility that 40-70% of the world population will be infected by the end of the year. The consensus seems to be: yeah, it might get pretty bad. However, if history offers any lessons, it's that even the worst pandemics rarely last more than a year. The Spanish Flu of 1918, widely acknowledged to be the worst pandemic of the century, began in March of 1918 and was largely over

This article was written by

Zero Sum Gamer profile picture
Investment style: buying great businesses at fair prices. Favorite sector: technology, due to massive competitive advantages, capital-light growth, cash rich balance sheets, and greatest potential to disrupt and cannibalize other industries. Time horizon: forever. Super interested in the rise of big data, quantitative investing, and how ordinary humans can still achieve alpha in a market increasingly dominated by machines

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (31)

flakeightyeight profile picture
>these masks don’t prevent the virus
>there is no justification for this to be above 10
>not worth shorting unless it goes >30

Pure panic garbage play. Do not touch.
I saw the handwriting on the wall last week when HHS and CDC put out statements that masks would be relatively ineffective at protecting people in the general population. I made some good money with calls last week and was out before Friday. Today's news thatany of the company's execs sold shares is possibly another clue that this trade should not be a long one.
Sorry, my bad. No options available on this stock. This was just a straight stock purchase/sale.
flakeightyeight profile picture
If you mean $APT there most definitely are options
microcaptrader profile picture
Many Form 4's filed today:

COVID-19 death rate globally is now 3.4% per the WHO update. The virus is in it's first wave, the second wave comes this summer & the third wave arrives in early 2021. This virus will be like the Spanish Flu pandemic of 1918-19 & the death toll could surpass that of the Spanish Flu pandemic. Long NVAX.
Belaire profile picture
Great article that I enjoyed reading. I was lucky enough to stumble onto APT in the 5s and am holding as the virus spreads globally. Have been trading Puts and Calls since. Soon enough it will be exercised away or cost me zero to acquire, fun times for now.
Good luck everyone !
Tau Equity Research profile picture
I think the greatest clarification which needs to be made regarding the relationship between the coronavirus and APT is that it's not the severity of the epidemic which determines its worth, it's the length of time over which demand for masks remains at peak levels. If this gets horrible for the next two months then declines quickly, it does not matter. Alpha Pro Tech is already at peak capacity. This is the best article I've seen thus far at hitting that point, and I think the author is giving them far more benefit of the doubt than they are due. Look at how quickly China reached a point of declining cases. Even without the benefits of totalitarian measures in quelling the outbreak in the U.S., this is unlikely to be a lasting issue. When the H1N1 outbreak hit, management claimed they foresaw it lasting 2-5 years. How'd that work out?
Michael Bryant profile picture
I think you are too optimistic. Of course we all hope the virus is contained, but SARS wasn't contained until July, and this virus could become a pandemic as it is spreading rapidly in Iran, Europe (Italy, France, Germany, Spain), and South Korea.

"Even without the benefits of totalitarian measures in quelling the outbreak in the U.S., this is unlikely to be a lasting issue."

How do you know? Unless the same or similar measures China did is copied in America, the virus likely won't be contained. Is the U.S. going to quarantine 2/3 of all major cities, relocate citizens for disinfection of cities, and kill dozens of animals in the process?
Mukticat profile picture
I hardly expect this blue skies scenario - even for one year - that the author generously assigns to APT due to the simple fact that they're a tiny company while there are far larger outfits, including Chinese manufacturers, with enormous capacity that will be happy to grab this business given the margins on offer.

Given the correct filter cloth how difficult can it be to manufacture a mask?? I'm pretty sure the Chinese can handle this (just as their Maoist/Total Surveillance societal controls is doing the impossible and seemingly squelching the spread of Covid)
So, the 129M is based on the profit for 2 years? I have never heard this applied to any valuation, please correct me if I am wrong.
Can you recalculate the EPS/PE using your numbers? It seems it comes to something like ~ 5-5.50 and 4 at stock price of 20. Seems pretty good to me, though I understand this may change for the worse at some point perhaps... Am I missing something?
Henrik Alex profile picture
Yes, they won't earn anything close to this year's numbers going forward. The stock remains a pure trading vehicle which gets picked up everytime a virus hits - and abandoned once the worst is over.
Zero Sum Gamer profile picture
@sakamba70 Yup, using PE for valuation only works if earnings are normalized and you can expect a similar amount of earnings in subsequent years. APT will definitely have an erratic earning situation where they spike for one year and then return to normal pre-virus levels, so PE is not an appropriate valuation method for this company.
Yes, but my point was that they will still earn something. Seems like the numbers in the blog completely discount the ~3M per year they have been earning. I understand that there is a lot of speculation behind the numbers, but it will be more important if APT does something useful with this windfall. Or for example get into long term contracts. That will change the math dramatically. Basically, if they are a good company- the current valuation may stick around until the next scare (remember ebola?).
Why would anyone write an article suggesting a buy or sell? This stock in back up to $19...if anything I would suggest trading this stock only for swing plays. Suggesting a buy or sell is a losing proposition. Instead suggest entering and exiting quickly for small gains. I was fortunate to buy at $5 and rode it $20, but now, the shorts wipe out bulls, and bulls wipe out shorts every other day.
I think that in long term the current value won’t hold. For a short term investment, although extremely co lately, the stock has margin to grow and maybe returning to its highest value $25
Fabián Orccón profile picture
I was unfortunate to buy at 1.58 and sell it for 3.14
lestatv92 profile picture
there is an article on cnbc where someone in the HHS said they only have 10% of the masks that the need.
And what happens to your analysis if they use that increase in cash to buy back stock, dollar for dollar (as they've done over the past several years)?

If they hold that $84mm and wait for the stock to return to a more reasonable long-run value, depending on what that value is - that could be the vast majority of their outstanding shares the buy back.
To the Author, I made the most money from this stock.
Henrik Alex profile picture
Very good color. Thanks for sharing your work.
so where do you see the stock price at if it continues into April or May ?
Southwest Michigan Trader profile picture
thinks how you look at APT depends on your time frame... long-term you are likely correct, but short-term a high risk short where you could get blown out and lose big/be forced to cover in a squeeze before your predictions come true. thanks.
so long term is a benefit if things keep going the way that it is with the virus?
Why not just use put options? limit the unlimited risk of short selling..
Tau Equity Research profile picture
Implied Volatility is astronomically high, meaning that the breakeven prices for August puts is around -40% of current. Still worth it in my opinion, but there is limited upside. It's a good play for 20%ish gains if you buy a peak.
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