Is Now The Right Time To Buy Alcoa Stock Given Its Weak Fundamentals?

Core Viewpoint - Alcoa (NYSE:AA) stock is deemed unattractive for purchase at its current price of approximately $29 due to significant concerns regarding its operational performance and financial health, despite a low valuation [1][10]. Revenue Development - Alcoa's revenues have shown notable growth recently, with a 12.7% increase from $11 billion to $12 billion in the last 12 months, compared to a 5.3% growth for the S&P 500 [4]. - Over the last three years, Alcoa's top line has contracted at an average rate of 0.0%, while the S&P 500 has increased by 6.2% [4]. - Quarterly revenues surged 34.3% to $3.5 billion in the most recent quarter from $2.6 billion a year prior, compared to 4.9% growth for the S&P 500 [4]. Profitability - Alcoa's operating income over the last four quarters was $828 million, resulting in a poor operating margin of 7.0%, compared to 13.1% for the S&P 500 [5]. - The operating cash flow (OCF) during this period was $622 million, reflecting a very poor OCF margin of 5.2%, compared to 15.7% for the S&P 500 [5]. - Alcoa's net income for the last four quarters was $60 million, indicating a very poor net income margin of 0.5%, compared to 11.3% for the S&P 500 [5]. Financial Stability - Alcoa's debt stood at $2.8 billion at the end of the most recent quarter, with a market capitalization of $7.5 billion, resulting in a poor debt-to-equity ratio of 43.4%, compared to 21.5% for the S&P 500 [6]. - Cash (including cash equivalents) constitutes $1.1 billion of the $14 billion in total assets for Alcoa, yielding a moderate cash-to-assets ratio of 8.1%, compared to 15.0% for the S&P 500 [6]. Valuation Metrics - Alcoa has a price-to-sales (P/S) ratio of 0.5 compared to 2.8 for the S&P 500 [7]. - The company's price-to-free cash flow (P/FCF) ratio is 10.4 compared to 17.6 for the S&P 500 [7]. - Additionally, it has a price-to-earnings (P/E) ratio of 8.1 versus the benchmark's 24.5 [7]. Downturn Resilience - AA stock has suffered significantly more than the S&P 500 during recent downturns, with a 75.4% decrease from a high of $95.06 on March 24, 2022, to $23.41 on October 23, 2023, compared to a peak-to-trough decline of 25.4% for the S&P 500 [9]. - During the COVID pandemic in 2020, AA stock dropped 74.5% from a high of $21.51 on January 1, 2020, to $5.48 on March 20, 2020, compared to a peak-to-trough decline of 33.9% for the S&P 500 [9]. Overall Assessment - Alcoa's performance across key parameters is summarized as follows: Growth is very strong, profitability is extremely weak, financial stability is weak, and downturn resilience is extremely weak, leading to an overall assessment of very weak [12].