Alpha Pro Tech Ltd., listed on the NYSE Amex under the ticker APT, continues to trade under Wall Street’s radar, despite reporting strong fourth quarter and year-ended 2009 financial results. Year-to-date the share price has dropped in half for reasons difficult to discern; little information can be found to justify the downwards spiral in price. This unique situation, ladies and gentlemen, is known as opportunity. For one it may present a suitable investment opportunity, for another - a timely swing trade opportunity. Regardless, even Alpha Pro Tech critics agree that the company is worth watching closely at the current prices. That is because short-term technical indicators suggest the share price may have found a bottom. What this means for most investors is an opportunity for quick gains on the upside. But there is more to this low-float stock and rapid-growth Company than meets the lazy eye. For starters, 21-years of operating history topped only by insiders who control nearly 21% of the company redefine the meaning of ‘long-term value and growth’.
On March 29th, 2010, Alpha Pro Tech announced a revision to their distribution of disposable protective apparel. The company reported that due to the launch of their own competitive brand, VWR International, LLC would no longer carry Alpha Pro Tech’s Critical Cover® proprietary shoe and boot apparel. Source
As in most cases, the market overreacted and the share price tumbled on ‘apparently’ bearish news. Three weeks afterwards, as chance would have it, we discovered this market, the ‘seemingly’ bearish news, the price reaction that accompanied, and decided to investigate for ourselves whether the market appropriately reacted. We contacted Alpha Pro Tech IR, Donna Millar, and inquired what the revision meant for the company and its outlook. Donna replied by stating that the revision in distribution of the company’s disposable protective apparel line would align Alpha Pro Tech to better meet long-term goals by allowing access to a broader group of distributors, and naturally, a broader market. She emphasized that while the distribution of two of the company’s products in the disposable protective apparel line was revised, their relationship with VWR remains strong and the distributor will continue to carry their other products.
In 2009, the company’s building supply segment accounted for 25.6% of sales revenue; infection control segment added $21.7M or 36% of total sales revenue. Growing 67% year-over-year in 2009, the company’s disposable protective apparel, coincidentally, showed the least amount of growth. Alpha Pro Tech explained:
“Disposable Protective Apparel segment sales during 2009, although a record annual high, were adversely affected by a supply chain issue in which goods from Asia were delayed due to the high demand for products relating to the global H1N1 Influenza A pandemic.”
Deducing the market had overreacted to the company’s news, the likelihood of investors having misinterpreted the news grows greater. As in most cases where the market overreacts to corporate news, an event, etc., a correction is needed to compensate for an unjustified reaction. A correction in Alpha Pro Tech’s market is long overdue having reached the point where shares are ‘oversold’. This means that investors may be looking at a significant upside and lower risk, or downside.
In October of 2009, Alpha Pro Tech was capitalized at $170M. Since, a 69% decline in share price has accounted for a $117M loss in ‘market value’ or capitalization. As we’ve illustrated vehemently, the decline in price per share is counterintuitive based on the company’s financial performance, moreover record sales growth in all business segments. In 2009, the company earned $0.39/share amid a 478% jump in net income year-over-year. Source
According to Yahoo! Finance, Alpha Pro Tech’s competitors trade at an average price-to-earnings (ttm) ratio of 48. Shares of Alpha Pro Tech currently address an earnings multiple just above 6. Proposing a valuation based on a conservative 10-15 P/E ratio in the Medical Appliances & Equipment industry, Alpha Pro Tech should trade between $3.90 and $5.85/share. Assuming the share price is to adjust to our high end target, Alpha Pro Tech will recover but $78M of the $117M lost in market value since peaking at $7.60/share last October. That leaves room to accommodate any unforeseen growth.
About Alpha Pro Tech, Ltd.
Alpha Pro Tech, Ltd. is the parent company of Alpha Pro Tech, Inc. and Alpha ProTech Engineered Products, Inc. Alpha Pro Tech, Inc. develops, manufactures and markets innovative disposable and limited-use protective apparel products for the industrial, clean room, medical and dental markets. Alpha ProTech Engineered Products, Inc. manufactures and markets a line of construction weatherization products, including building wrap and roof underlayment. The Company has manufacturing facilities in Salt Lake City, Utah; Nogales, Arizona; Janesville, Wisconsin; Valdosta, Georgia; and a joint venture in India. For more information and copies of all news releases and financials, visit Alpha Pro Tech's Website at http://www.alphaprotech.com.
Disclosure: Long APT