Alcoa Corp (NYSE:AA) announced Q4 2017 earnings after the close of trading on Jan. 17. Depending on how you look at earnings reports, Alcoa’s numbers were either respectable or a major disappointment. With AA stock down more than 7% in early Jan. 18 trading, it appears investors have chosen the latter.

If you hold AA stock at the moment, you’re either wondering why you didn’t sell before earnings or, conversely, if this is an opportunity to buy more on the dip.

Although earnings were well short of expectations, they are still heading in the right direction, so the answer from a pure earnings perspective isn’t nearly as straightforward as you might think.

The Positives for AA Stock

Excluding one-time special items, Alcoa earned $195 million or $1.04 per share in the fourth quarter, 44% higher than in Q3 2017 and 643% higher than a year earlier when it was part of a much bigger company and reported on a carve-out basis.

On the top line, it grew revenues by 7% sequentially and 25% year-over-year to $3.2 billion.

“Solid market fundamentals allowed us to deliver our strongest adjusted EBITDA quarter since our launch as an independent, publicly-traded company,” said Roy Harvey, President and Chief Executive Officer.

About that adjusted EBITDA. Alcoa delivered $2.4 billion adjusted EBITDA excluding special items, more than double the $1.1 billion in 2016. In 2018, it expects to generate at least $2.6 billion in adjusted EBITDA or 10% higher than this past year.

Regarding free cash flow (FCF), Alcoa went from negative FCF of $715 million in 2016 to positive FCF of $819 million in 2017.

I’m using Morningstar’s cash return metric, which measures how efficiently a company’s using its capital structure. Defined as free cash flow plus net interest expense divided by enterprise value, I get a cash return yield on Alcoa stock of 10.2%.

Anything over 8% is considered a potential value stock.

Lastly, the company expects global demand for aluminum to grow by 4.75% in 2018, based on its midpoint estimate. While lower than the 5.25% growth in 2017, it’s still relatively healthy.

The Negatives for AA Stock

Alcoa missed on both the top and bottom line. Analysts were expecting $3.29 billion in revenue and adjusted earnings per share of $1.22. Alcoa missed on revenues by 4%, or $116 million; it missed on earnings by 15%, or 18 cents a share.

Due to production issues during the quarter, Alcoa missed out on approximately $50 million in revenue. That’s never good, but it does happen.

During the quarter, it made some moves to deal with its pension issues including freezing the defined benefit plans of its U.S. and Canadian salaried employees effective Jan. 1, 2021, transitioning about 800 people to defined contribution plans.

That’s a good news/bad news situation.

Lastly, let’s not forget that on a GAAP basis, Alcoa still lost $196 million in the quarter, 57% higher than Q4 2016.

However, it did manage a profit of $217 million or $1.16 a share for fiscal 2017, another sign it’s moving in the right direction.

Should You Buy AA Stock on the Dip?

I’m not a fan of companies with legacy issues such as Alcoa’s pension shortfall, so I wouldn’t be a buyer of its stock.

However, if you can afford to lose your investment, Alcoa stock is indeed more affordable today than it was yesterday.

If you’re looking for a speculative value play, I’d be a buyer on the dip.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.