Yahoo Finance 
Yahoo Finance Plus Here's Why I Think Alto Ingredients (NASDAQ:ALTO) Is An Interesting Stock
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Alto Ingredients (NASDAQ:ALTO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Check out our latest analysis for Alto Ingredients
Alto Ingredients's Improving Profits
In the last three years Alto Ingredients's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. As a result, I'll zoom in on growth over the last year, instead. Like a firecracker arcing through the night sky, Alto Ingredients's EPS shot from US$0.21 to US$0.50, over the last year. Year on year growth of 134% is certainly a sight to behold. That could be a sign that the business has reached a true inflection point.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While Alto Ingredients did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future my hold further growth, especially if EBIT margins can stabilize.
In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Alto Ingredients.
Are Alto Ingredients Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Despite -US$375k worth of sales, Alto Ingredients insiders have overwhelmingly been buying the stock, spending US$587k on purchases in the last twelve months. On balance, to me, this signals their optimism. Zooming in, we can see that the biggest insider purchase was by Independent Director Gilbert Nathan for US$139k worth of shares, at about US$5.73 per share.
Along with the insider buying, another encouraging sign for Alto Ingredients is that insiders, as a group, have a considerable shareholding. Indeed, they hold US$17m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 4.5% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. The cherry on top is that the CEO, Mike Kandris is paid comparatively modestly to CEOs at similar sized companies. For companies with market capitalizations between US$200m and US$800m, like Alto Ingredients, the median CEO pay is around US$2.7m.
Alto Ingredients offered total compensation worth US$1.9m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.
Should You Add Alto Ingredients To Your Watchlist?
Alto Ingredients's earnings per share have taken off like a rocket aimed right at the moon. Just as heartening; insiders both own and are buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Alto Ingredients deserves timely attention. Still, you should learn about the 3 warning signs we've spotted with Alto Ingredients (including 1 which is a bit unpleasant) .
The good news is that Alto Ingredients is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
