Some companies seemed to come out of the woodwork during the spread of the novel coronavirus. Alpha Pro Tech (NYSEAMERICAN:APT), for example, was relatively unknown to the trading community prior to this year. Today, APT stock is not only heavily traded, but it’s also starting to look expensive.
By that I don’t mean APT stock is a four-figure stock like Amazon (NASDAQ:AMZN) or Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). APT is certainly more affordable than those stocks. Rather, I’m saying that the APT share price may be overbought on a relative basis.
Plus, the share price appears to be strongly correlated with the public’s and the market’s concerns over the coronavirus. This means that the APT stock price may be too dependent on rising fears over Covid-19.
These fears could always escalate, no doubt. Yet, it would be speculative to bet one’s hard-earned money on the coronavirus crisis getting worse. And beyond virus-centered personal protection gear, Alpha Pro Tech doesn’t seem to have much to offer.
A Closer Look at APT Stock
Many people who trade APT stock probably don’t know that it’s been around for quite a few years. In fact, for 20 years it traded as a “penny stock,” which technically means that it was below $5 per share.
Then Covid-19 happened and everything changed. The trading community piled into “coronavirus stocks” and APT was seen as falling into that category.
Just to give you some perspective on how swift the price spike was, APT shares were priced at $4.74 on Feb. 12. By Feb. 27, APT stock was trading at $25.25. That’s a return on investment of more than 400%.
In hindsight, we now know that the hype wasn’t meant to last. By March 10, APT had fallen all the way down to $9.21. This is a textbook example of how traders can be fickle, pumping a stock price up only to dump it within a matter of days.
My concern is that this could happen again. As of July 28, APT stock was trading at $23.64. This is not very different from the previous peak we observed in February. I would hate to see people pile into this stock and then watch in horror as it gets dumped again.
Is It Different This Time?
In researching Alpha Pro Tech, I noted that InvestorPlace contributor extraordinaire Josh Enomoto presented a compelling bull case for the company.
Enomoto encouraged us to consider the possibility that like the Great Depression, the Covid-19 pandemic could mark a permanent behavioral change for one or more generations of people.
I’ll quit rambling for a moment (I can hear the applause now) so that Enomoto can speak for himself:
“Moving forward, we may view PPE in a completely different light. I’ll bet you anything a good chunk of the American populace will stock up on N95 respirators, just in case. And this isn’t like earthquake or tornado preparation purchases, which only impact certain geographic locations. No, Covid-19 impacted all of us — rich, poor, Black, white and everybody in between.”
Well said, and it’s a thesis worth considering regardless of what you’re investing in. As it pertains to Alpha Pro Tech in particular, informed traders must consider whether the robust demand for personal protective equipment will persist.
And make no mistake: for the foreseeable future, the gains in APT stock depend entirely on the public’s demand for this equipment. As a case in point, note how APT shares spiked when President Donald Trump tweeted a picture in which he was wearing a protective mask.
The Bottom Line on APT Stock
Investors should take the generational-change argument seriously as it weighs in favor of a long position in APT stock. Just be careful about buying it at a relatively high price point because we’ve seen the stock reach this level before, only to collapse soon afterward.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.