ALTO Ingredients, an ethanol production company, is currently undervalued due to the market's failure to understand the temporary challenges it faced in 2022. The company has a clear plan to secure the necessary capital expenditure (CAPEX) to generate over $120 million in additional EBITDA by the end of 2026. The challenges ALTO experienced, such as spikes in natural gas prices, corn basis, and other costs, were unique and not likely to repeat. Understanding these factors is crucial to comprehending the company's future potential and realizing its true value.
ALTO's liquidity concerns appear to be overblown, as the company has significant available liquidity. It requires a maximum of $106.5 million in cash for CAPEX through 2025, while currently having $159 million in available funds. ALTO also maintains a positive working capital position of $121.1 million, providing additional flexibility. Comparing ALTO's working capital ratio to competitors, the company emerges as the stronger contender.
The valuation of ALTO is considered undervalued, with potential for a market cap ranging from $800 million to $1.7 billion by the end of 2026, resulting in a share price range of $10.7 to $22.6. The company's future growth prospects, including additional revenue streams and potential increase in specialty alcohol volumes, contribute to its valuation potential. While risks exist, such as sustained negative crush margins and regulatory changes, ALTO's strong financial position, anticipated cash flows, and ongoing projects mitigate these risks.
In conclusion, ALTO Ingredients is undervalued due to the market's failure to understand the temporary challenges it faced in 2022. The company has a clear path to secure necessary funding for growth plans, and its liquidity position is strong. With an understanding of the unique factors that affected ALTO's performance, its future growth prospects indicate an attractive investment opportunity.
All of the above is a summery from a lengthy article that Justin from DOMO Capital wrote. As it's a seeking alpha article I can't link to it. DOMO's twitter has a link to the article with his thesis.
Check out DOMO Capital's twitter account for daily updates about “crush margin” and all the other things that effect the company's business.
Position or ban? I have 30k shares and 30 $3c expiring in Aug and Oct
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