Albany’s stock price has taken a beating over the past six months, shedding 25.3% of its value and falling to $50.29 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Albany, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Do We Think Albany Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Albany. Here are three reasons there are better opportunities than AIN and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Albany’s 4.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector.
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Albany’s margin dropped by 9.9 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Albany’s free cash flow margin for the trailing 12 months was 8%.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Albany’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Albany falls short of our quality standards. Following the recent decline, the stock trades at 17.7× forward P/E (or $50.29 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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