Is Now The Right Time To Buy Alcoa Stock Given Its Weak Fundamentals?
Alcoa (NYSE:AA) stock appears unappealing – making it a poor choice to purchase at its current price of approximately $29. We believe there are several significant concerns regarding AA stock, which renders it unattractive even though its current valuation is quite low.
We reach our conclusion by evaluating the present valuation of AA stock against its operational performance over recent years, along with its current and historical financial standing. Our analysis of Alcoa based on key parameters such as Growth, Profitability, Financial Stability, and Downturn Resilience reveals that the company exhibits a very weak operational performance and financial health, as elaborated below. However, if you are looking for upside with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative – having outperformed the S&P 500 and achieved returns exceeding 91% since its inception.
When assessing what you pay per dollar of sales or profit, AA stock appears inexpensive compared to the broader market.
• Alcoa has a price-to-sales (P/S) ratio of 0.5 compared to a figure of 2.8 for the S&P 500
• Furthermore, the company's price-to-free cash flow (P/FCF) ratio is 10.4 compared to 17.6 for S&P 500
• Additionally, it has a price-to-earnings (P/E) ratio of 8.1 versus the benchmark's 24.5
Alcoa's Revenues have experienced notable growth in recent years.
• Alcoa's top line has contracted at an average rate of 0.0% over the last 3 years (compared to an increase of 6.2% for S&P 500)
• Its revenues have increased by 12.7% from $11 Bil to $12 Bil in the last 12 months (versus a growth of 5.3% for S&P 500)
• Furthermore, its quarterly revenues surged 34.3% to $3.5 Bil in the most recent quarter from $2.6 Bil a year prior (compared to 4.9% growth for S&P 500)
Alcoa's profit margins are significantly lower than most companies in the Trefis coverage universe.
• Alcoa's Operating Income over the last four quarters was $828 Mil, indicating a poor Operating Margin of 7.0% (compared to 13.1% for S&P 500)
• Alcoa's Operating Cash Flow (OCF) during this time was $622 Mil, reflecting a very poor OCF Margin of 5.2% (compared to 15.7% for S&P 500)
• For the last four-quarter period, Alcoa's Net Income was $60 Mil – indicating a very poor Net Income Margin of 0.5% (compared to 11.3% for S&P 500)
Alcoa's balance sheet appears weak.
• Alcoa's debt stood at $2.8 Bil at the end of the most recent quarter, while its market capitalization is $7.5 Bil (as of 5/19/2025). This results in a poor Debt-to-Equity Ratio of 43.4% (compared to 21.5% for S&P 500). [Note: A low Debt-to-Equity Ratio is preferable]
• Cash (including cash equivalents) constitutes $1.1 Bil of the $14 Bil in Total Assets for Alcoa. This yields a moderate Cash-to-Assets Ratio of 8.1% (compared to 15.0% for S&P 500)
AA stock has suffered significantly more than the benchmark S&P 500 index during recent downturns. While investors hope for a soft landing for the U.S. economy, what could happen if another recession occurs? Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and after the last six market crashes.
• AA stock decreased 75.4% from a high of $95.06 on 24 March 2022 to $23.41 on 23 October 2023, compared to a peak-to-trough decline of 25.4% for the S&P 500
• The stock is still unable to recover to its pre-Crisis high
• The highest it reached since then is $47.42 on 26 November 2024 and currently trades at approximately $29
• AA stock dropped 74.5% from a high of $21.51 on 1 January 2020 to $5.48 on 20 March 2020, compared to a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully regained its pre-Crisis peak by 1 December 2020
In conclusion, Alcoa's performance across the outlined parameters is as follows:
• Growth: Very Strong
• Profitability: Extremely Weak
• Financial Stability: Weak
• Downturn Resilience: Extremely Weak
• Overall: Very Weak
Therefore, despite its very low valuation, we consider the stock to be unappealing, reinforcing our conclusion that AA is a poor stock to purchase.
While it would be prudent to steer clear of AA stock for the time being, you may want to consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to yield strong returns for investors. What accounts for that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks has provided a responsive strategy to capitalize on favorable market conditions while minimizing losses during market downturns, as explained in RV Portfolio performance metrics.
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