Alpha Pro Tech (NYSEMKT:APT) stock is an excellent play. Not only does it benefit from demand for personal protective equipment for the novel coronavirus, but it benefits from stockpiling and the “buy American” sentiment. And APT stock comes with a reasonable valuation. With that in mind, I think APT stock still has room to run. Buy it now.
Alpha Pro Tech’s headquarters are in Canada, but its manufacturing facility is located in Utah. That sounds pretty American to me. And in case APT stock is new to you, the company makes PPE like face masks, face shields and infection control suits.
Not surprisingly, APT stock has soared during the pandemic. So has the company’s revenue. In the first quarter, revenue jumped 47.5% year-over-year.
And had an earthquake not impacted manufacturing in Q1, revenue would have been about $300,000 higher. Thankfully, it looks like the company has solved that problem. It said in April it expects to meet all orders for masks and shields through the beginning of Q4.
APT stock has soared 66% in the last three months, nearly 535% this year, and 20% in the last month. I think shares have even more left in the tank.
APT Stock Benefits From Stockpiling Trends
Even after the pandemic is over, the U.S. federal government, many American states and foreign countries will likely want to buy a large amount of PPE. Why? Everyone will want to be ready for the next pandemic. When the next pandemic occurs, no government will want to be caught unprepared and suffering from PPE shortages. The U.S. government has been there before.
Additionally, even after a vaccine is ready, some Americans may choose not to receive it. Consequently, hospitals and paramedics will likely still have to treat a small number of novel coronavirus patients through 2021 or early 2022.
Given these factors, Alpha Pro Tech’s sales are likely to remain strong for some time. And I have more proof of that. When the company reported its Q1 results, it noted that it had taken orders for face shields and face masks that are not slated to be filled until the first half of 2021.
‘Buy American’ Trend Supports Alpha Pro Tech
Turning to the “Buy American” trend, many U.S. politicians have understandably become wary of the country’s practice of importing much of its drugs, PPE and medical equipment from China. Tensions between the two nations are rapidly intensifying. And there have been cases in which China has sold dysfunctional PPE to the U.S. Because of this, it is logical for America to reduce its reliance on China for medical equipment.
This issues with manufacturing go beyond China. At the start of the pandemic, the U.S. was competing with allies Germany and France for masks 3M (NYSE:MMM) had produced overseas. President Donald Trump and many Republican lawmakers have therefore been looking to increase domestic production of drugs and medical equipment. For example, Trump recently reached an agreement with Eastman Kodak (NYSE:KODK). The government provided a loan, and now Kodak will help produce generic drugs like hydroxychloroquine.
But what happens if Trump loses in November? Former Vice President Joe Biden would likely not be as intent on reducing U.S. PPE imports from China. However, Biden’s own “Buy American” plans suggest his administration would at least push the federal government to buy more PPE from U.S. companies.
Thus, no matter who wins the election, Alpha Pro Tech’s sales should stay meaningfully above their 2019 levels for the next several years.
Valuation and the Bottom Line on APT Stock
A Seeking Alpha columnist recently estimated that, in an optimistic scenario, APT’s 2020 earnings per share could reach $1.71. I believe that the company’s EPS will drop by 20% in 2021. So its 2021 EPS could be about $1.40. Placing a price-earnings ratio of 25 times — versus the market average of about 16 times — on that EPS yields a forward price target of $35. That looks desirable against the current share price near $22.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned stocks.