Should You Buy Alten SA (EPA:ATE)?

Alten SA (ENXTPA:ATE) continues to post impressive revenue growth and its prospects have never been brighter. I will touched on some key aspects you should know on a high level, around its financials and growth prospects going forward.

Firstly, a quick intro on the company – Alten SA operates as an engineering and technology consultancy company in France and internationally. Since starting in 1988 in France, the company has now grown to a market cap of €2.83B.

ENXTPA:ATE Future Profit May 16th 18
ENXTPA:ATE Future Profit May 16th 18

The company is growing incredibly fast, with a year-on-year revenue growth of 12.99% over the past financial year , and a bottom line growth of 30.80%. Since 2013, revenue has grown 10.14%, lifted by previous years of higher capital expenditure, which most recently reached €13.80M. An expected return on investment of 14.97% over the next three years is a result of ATE’s reinvestment into the business, according to the consensus of broker analysts covering the stock. Net income is expected to reach €155.46M in the upcoming year, and over the next five years, earnings are expected to grow at an annual rate of 6.67% on average. These numbers tell me that ATE has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.

ENXTPA:ATE Historical Debt May 16th 18
ENXTPA:ATE Historical Debt May 16th 18

ATE’s financial status is a key element to determine whether or not it is a risky investment – a key aspect most investors overlook when they focus too much on growth. Alten’s balance sheet is robust, with high levels of cash generated from its core operating activities (1.61x debt) able to service its borrowings. Furthermore, ATE’s debt level is at an appropriate 6.80% of equity, though it has been increasing over the past five years from 0.26%. ATE also generates a sufficient level of earnings which amply covers its annual interest payment 216x. Management exhibits strong capacity to effectively utilize capital, increasing my conviction of the sustainability of the business going forward. ATE has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. A reason I like ATE as a business is its low level of fixed assets on its balance sheet (1.74% of total assets) . When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. ATE has virtually no fixed assets, which minimizes its downside risk.

ATE currently trades at €84.80 per share. At 33.36 million shares, that’s a €2.83B market cap – which is about right for a company that has a 5-year cumulative average growth rate (CAGR) of 11.33%. With an upcoming 2018 free cash flow figure of €127.45M, the target price for ATE is €77.19. This means the stock is currently trading at a relatively fair value. Furthermore, comparing ATE’s current share price to its peers based on its industry and earnings level, it’s trading at a fair value, with a PE ratio of 19.19x vs. the industry average of 21.53x.

ATE has a strong investment case. The stock is appealing because of its strong fundamentals – financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.