The “story” behind Alpha Pro Tech (NYSEAMERICAN:APT) stock played out months ago. This maker of PPE (personal protective equipment) thrived following the onset of the novel coronavirus. Yet, even as the situation has improved in recent months, last month we saw many decide to take another roll of the dice with this highly speculative stock.
Granted, it wasn’t only the mania over meme stocks that drove shares from $12 back to around $20 per share. News of President Joe Biden invoking the Defense Production Act provided some rationale for the renewed excitement for this stock. But, while that provided an out for those who bought the late 2020 pullback, don’t expect a similar situation to happen following the most recent dip.
Why? It may take some time for Alpha Pro Tech’s sales to slide back to pre-Covid levels. But, as things continue to move in the direction of the “old normal,” there’s nothing to be excited about here. Without Covid-19 tailwinds, it’ll be next to impossible for the stock to hold onto what’s left of its 2020 gains.
In short, expect further declines, back to the single-digits. Don’t give your hopes up waiting for yet another rebound.
Why Another Big Rally Isn’t in Store for APT Stock
Last year, I made the case why pandemic plays like Alpha Pro Tech were not great opportunities. Why wasn’t this a great opportunity, even at the height of the virus? With all of its growth due to a one-time event, downside risk exceeded limited upside. As the rest of 2020 played out, this take proved correct. After hitting prices topping $25.55 per share, this play on recent events pulled back substantially, even as the crisis continued.
But, what about the short-lived surge seen last month? What should investors make of it? Consider it as noise, nothing more, nothing less. Yes, like I said above, there was some rationale behind the rally. And, with it being one of the main ways to play this development, it’s no shock investors piled back into APT stock.
However, you can’t deny how much the manic enthusiasm for meme stocks played role in this. Retail traders bid up other popular small-cap stocks more aggressively. But, given the temporary bounce back here occurred during the same timeframe (late January to early February) it’s clear speculation was a major factor here.
Now that the stock’s pulled back again, could we see another short-lived rip? Don’t count on it. Just like how last year’s surging demand for PPE and face masks is set to dissipate, don’t expect a repeat of last month’s madness. As the focus on tackling the virus has shifted to vaccines, I don’t see further government action improving the company’s fortunes.
And, as meme stock madness enters the Wall Street history books, another irrational rally doesn’t look to be on the horizon, either. So, where do shares go from here? Perhaps not back to their pre-Covid levels. But, a move back into the mid-single digits looks likely.
How Low Could Alpha Pro Tech Stock Go?
With the hopes of another stunning rally all but dashed, brace for impact with APT stock. But, to what extent? As shares trade barely above $10 per share, a move back toward the single-digits is a near-certainty. But, will the stock fall back to its pre-Covid levels (around $3.50 per share), or will it settle more in the mid-single digit range?
It’s hard to tell. On one hand, in the next year or two, as its sales recede back towards “old normal” levels, there’s little reason to justify buying this stock at a premium to its historical trading range. On the other hand, it’s not as if, post-pandemic, demand for personal protective equipment will subside completely.
With sales projected to come in at around $99.7 million this year, and around $89.5 million next year, this may be enough to stabilize the stock at prices between $5 and $10 per share. Yet, while downside risk from here may not be as severe as it was last summer, it doesn’t make shares a buy.
Putting it simply, there’s nothing here to fuel another rally. But, plenty of reason for lower prices going forward.
Ignore Last Month’s Rally, and Stay Away
The temporary boosts to Alpha Pro Tech shares are over and done with. Sales declines in the next two years may be gradual. But, there’s nothing on the table to give its underlying business another boost. In other words, little justification to give this company a higher valuation going forward.
What lies ahead? Continued declines back to the single-digits. Perhaps not to its pre-pandemic prices. But still, well below what we see today. So, what’s the verdict on APT stock? As was the case last year, stay away.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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