Current Price: $15
Target Price: $30 (speculative)
Upside: 100%+ (speculative)
Expiration Date: TBD
This idea was shared by Dan.
This is a short note and, overall, a very speculative/risky case – definitely not one of the more usual SSI ideas. However, the times seem to be changing and some members might find this interesting.
The essence of the idea is this – the first wave of the terrific short squeezes that we’ve seen for the last couple of days is likely coming to an end and all the newly minted multi-millionaires from the Robinhood/Reddit will be looking for the next target in their crusade against short-sellers.
All of the recent pumps $GME (17x), $KOSS (50x), $EXPR (8x), $AMC (6.5x), $BB (over 2x), $BBBY (2.5x), $MAC (1.7x) are already up multiple times and its quite likely that ceiling is close/already has been reached. Trading in most of these stocks have already been suspended by some exchanges and once the volumes go down and profit-taking starts, the whole thing is likely to collapse. However, the chances are that the hype will continue as many retail investors will be left with incredible returns on their investments, while a bunch of new players will be keen to join, fascinated by the whole “French revolution of Finance” story. And it’s quite possible that they all will look to repeat the “success” and search for new targets to squeeze. This is where $APT comes in.
So the investment (or speculation) thesis here is based on the expectation that APT will be picked up for the next short squeeze. Obviously, this is just a guess and this might never happen. Short-squeeze mania might fade away. Aside from this catalyst, the company is most likely to be overvalued due to the temporary covid-induced spike in revenues.
Do not forget to do your own due diligence before putting down any money on this.
Alpha Pro Tech is the potential to be a new target for the WSB crowd
- The most important factor to qualify as a short-squeeze target seems to be the short interest. That’s why GME became the first choice for Redditors with its short interest was over 100%. APT short interest rate is 25%, which probably qualifies for a potential squeeze. for a number of other targets short interest was at similar levels (e.g. EXPR had only 15%). The tweet that started KOSS says over 35% short interest rate, however, according to NASDAQ the stock had only 12k shares short on the 15th of January and I wasn’t able to find it on any top short squeeze/short interest monitors either.
- APT appears in the lists (albeit on second pages usually) of the most shorted names, so there is a decent chance it will get noticed.
- APT trading volume had already been materially higher yesterday and over the last couple of days. Moderate increases in volume quite often preceded the full-on short squeezes for the other names.
- Market cap is only $200m – if this stock gets noticed by the WSB crowd, the pump would be substantial. Most of the other short squeeze targets (AMC, BB, BBBY, NOK, MAC) were multi-billion market cap companies. Low market cap names saw much larger increases in the share prices – KOSS with 50x with $26m initial market cap and EXPR 8x with $75m market cap.
- APT’s free float is low. Insiders own 40% of shares, while various institutional investors hold an additional 25%. So the float is basically just 35% (4.7m shares) of a $200m market cap. This seems to be factor differentiating the returns for KOSS (50x) and EXPR (8x) versus much larger names.
- So far APT was relatively unnoticed by the Redditors (it’s up only 7% since the 21st of Jan and +25% YTD) and is barely mentioned on Reddit/Twitter. One of the explanations is that due to its size it is not that prominent on the major short interest monitors. Moreover, if you browse through WallStreetBets Reddit page or related Twitter pages, it’s visible that most of the crowd is still very much focused on GME/AMC/BB. Once the excitement wave for these falls off, they will go on searching for new preys. As put by Steve Sosnick (chief strategist of IB): “It’s like a wolf pack seeking out the weakest member of the herd”. And with all that, it only takes one timely tweet or Reddit post to create a serious catalyst for the surge.
- One additional catalyst that could positively impact the attractiveness of the stock to the new retail investors is that APT creates an impression of being cheap. The business is still riding the COVID waive (APT is manufacturer and marketer of protective apparel and equipment) with revenues up 2x-3x YoY each quarter. Run rate PE is close to 5x. Of course, all this is expected to revert quickly to pre-pandemic levels, hence a relatively high short interest. However, Q4 earnings are expected to be record-breaking and at least visually, this could bump the popularity of the stock as well as give additional legitimacy for the growth/cheapness story.
- Finally, president Biden is expected to announce several executive orders to intensify the fight with COVID-19, which should act as an additional catalyst for the increase in APT masks and protective apparel demand.
To sum up, APT has got a strong potential to be the next Robinhood/Reddit crowds induced short squeeze. Given the size of its free float (only $70m or 4.7m shares) and the exuberance level the market has reached over the last few days, it’s not hard to imagine APT spiking 2x if it gets noticed by the Redditors.
Alpha Pro Tech
APT operates in three business segments:
- disposable protective apparel – shoe covers, bouffant caps, gowns, coveralls, lab coats, etc.
- infection control segment – face masks and eye shields.
- building supply – construction weatherization products such as housewrap and synthetic roof underlayment, etc.
The first two segments of the business saw a massive upsurge due to the COVID-19 outbreak. Mask sales alone are expected to be $43m in 2020, which is almost equivalent to the total revenues of the company in 2019.
- Q1 revenues were up 47%, net income increased to $5.3m vs $1.2m YoY.
- Q2 revenues increased 123%, while net income was $6m vs $1m YoY.
- Q3 revenues increased 149%, net income was $8m vs $0.4m YoY.
The company expects Q4 revenues to increase even further and mentioned this positive trend will continue in 2021 (PR):
We saw a dramatic increase in revenue from face mask sales throughout the third quarter, and we currently expect face mask sales to increase through the fourth quarter of 2020 and into 2021.
Before COVID the stock used to trade rather consistently around 12x PE. In 2020 the company is likely to earn around $2/share, so it currently trades at around 7.5x TTM PE. On quarterly run-rate basis PE is probably closer to 5x. However, assuming that the pandemic-induced business fades away eventually APT is actually very expensive – the company trades at more 50x CY2019 net income. The full reversal might take a couple of years so the downside in the short term should be relatively well protected.