Alpha Pro Tech (NYSEAMERICAN:APT) stock is having another breakout moment. Back in late February, Alpha Pro Tech launched from $5 to $40 per share in the space of a week. Alpha Pro sells masks and protective equipment, and thus became a focal point for traders worried about the novel coronavirus. However, APT stock slumped back to $10 as the initial rush wore off. Until recently, people have gravitated to vaccine and testing stocks instead of protective masks.
Alpha Pro Tech, however, has delivered the goods on the earnings front, and now the share price is catching back up. APT stock has doubled in recent weeks, and recently reached $20 again. At this price, Alpha Pro Tech isn’t cheap, however there’s still a clear bullish case on the table for the stock.
Unlike so many other Covid-19 stocks, Alpha Pro Tech is making a lot of money and thus its financial picture is improving markedly as the pandemic drags on.
Blockbuster Earnings Buoy APT Stock
In May, Alpha Pro Tech announced its first-quarter 2020 earnings. They were simply incredible. The company’s revenues surged 48%, which would be impressive enough on its own. However, it managed to convert nearly all that into bottom-line profits as well. The company’s net income soared 338% versus the same quarter in the previous year.
Earnings per share quadrupled, jumping from 9 cents for Q1 2019 to 39 cents for this past quarter. If you annualize that figure, APT stock would earn more than $1.50 per share in full-year profits. That would imply that the stock is trading for just 13x earnings now. So why didn’t traders bid up the last earnings release more?
Earnings Surge Looks Increasingly Sustainable
Back in May, it seemed like Alpha Pro Tech was just going to earn unusual profits for a quarter or two. Mask-wearing in public still wasn’t that common, and the sales boost was driven in large part by demand at medical facilities.
Now, however, it’s clear that masks will be around for awhile. More and more states are putting in place mandatory mask requirements. Big chain stores like Home Depot (NYSE:HD) and Walmart (NYSE:WMT) are doing so as well. So, if anything, mask usage should be trending higher, not lower, in coming weeks and months.
Remember, in Q1, Alpha Pro Tech announced absolutely phenomenal results. Q2 and Q3 could be even better. Now, to be certain, this sales surge won’t last forever. But it’s increasingly looking like the company may get an extended period of blockbuster sales as people become accustomed to wearing masks in public for the foreseeable future.
As if that weren’t enough of a catalyst, Alpha Pro Tech stock also received a major technical boost. That’s because the company recently joined the Russell 2000 small-cap index, thus making it eligible to join many exchange-traded funds.
Due to its share price surge, its market capitalization is now high enough to warrant inclusion in this major index. The iShares Russell 2000 ETF (NYSEARCA:IWM) alone controls $40 billion of investor money, and countless smaller ETFs track the Russell index as well. As such, these funds are now mandated to invest in APT stock, providing more stability going forward.
APT Stock Verdict
The problem with most of the Covid-19 stocks is that they have little in the way of revenues or profits. Thus, they tend to trade more on sentiment than fundamentals. That’s fine as long as the virus remains the top story. But once traders turn their attention to other matters, many Covid-19 stocks will plummet.
Alpha Pro Tech, by contrast, is different. There’s a real and consistently profitable business here. The company, even prior to 2020, regularly generated positive earnings per share and free cash flow. It bought back its own stock, giving shareholders capital return. In other words, this was a stable and healthy company even before the pandemic catalyst arrived.
The valuation is still up for debate, of course. If the Covid-19 vaccines work and things return to normal, Alpha Pro Tech’s profits would quickly slide back to more mundane levels. That, in turn, would hit the share price. However, there’s a real solid fundamental base underpinning the shares. This isn’t a pump and dump scenario, as we’ve seen in other biotech names.
Alpha Pro Tech is making windfall profits now, and it will remain in fine shape even once the virus starts to recede. For now, though, there’s no signs of that. In fact, with more and more states and business chains putting mandatory mask requirements in place, look for Alpha Pro Tech to deliver more outstanding earnings in coming quarters. Simply put, if you want to own a Covid-19 stock, Alpha Pro Tech is one of the best options.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.