What a time it’s been for Allient. In the past six months alone, the company’s stock price has increased by a massive 77.5%, setting a new 52-week high of $98.65 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Allient, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Allient Not Exciting?
Despite the momentum, we’re sitting this one out for now. Here are three reasons why ALNT doesn’t excite us, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Allient’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.7% over the last two years. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Allient, its EPS and revenue declined by 2.4% and 1.7% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Allient’s low margin of safety could leave its stock price susceptible to large downswings.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Allient historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
Allient isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 37.4× forward P/E (or $98.65 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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