Alphatec Holdings Inc Up 434% From March Low & It’s Only the Start

Alphatec Holdings Inc Up 434% From March Low & It's Only the StartAlphatec Stock Could Boom from Health-Care Focus

The COVID-19 pandemic has given a massive boost to the health-care sector, and this is expected to continue in 2021. While biotechnology stocks have attracted the brunt of the market attention, I also like the medical device industry.

A small-cap company to watch is Alphatec Holdings Inc (NASDAQ:ATEC), a developer of innovative technologies to help improve spinal surgery.

Back in March, ATEC stock was trading down at $2.19 and hemorrhaging for support.

Alphatec stock subsequently mounted a full-scale attack, rallying to a high of $13.14 on December 17, equating to an incredible 434% return. On a year-to-date basis, the stock is up 84%.

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ATEC stock traded as high as $46.92 in May 2011, so clearly Alphatec Holdings Inc has promise and simply needs to deliver.

Alphatec stock’s recovery to its 50-day and 200-day moving averages, followed by the emergence of a bullish golden cross pattern and an upside trade gap, drove the buying and recent breakout.

Chart courtesy of StockCharts.com

The long-term chart shows ATEC stock possibly mounting an eventual attack at the $17.00 level from 2014 and the $28.00 level from 2013.

Chart courtesy of StockCharts.com

And while the easy money may have been made from Alphatec stock, I suggest taking a longer-term view for additional gains.

Strong Revenue Growth & Pathway to Profitability Supports ATEC Stock’s Bull Case

The five-year revenue picture for Alphatec Holdings Inc doesn’t exactly jump out at you. But the company’s strategy to reorganize its operations to drive growth appears to be paying off, as reflected by the 23.7% revenue growth in 2019.

Fiscal Year Revenue (Millions) Growth
2015 $134.4 N/A
2016 $120.3 -10.5%
2017 $101.7 -15.4%
2018 $91.7 -9.9%
2019 $113.4 23.7%

(Source: “Alphatec Holdings Inc.” MarketWatch, last accessed December 22, 2020.)

Moreover, the revenue estimates for Alphatec are on the rise. Analysts estimate that the company will ramp up its revenues by 27.6% to $144.7 million in 2020, followed by 23.5% to $178.7 million in 2021. (Source: “Alphatec Holdings, Inc. (ATEC),” Yahoo! Finance, last accessed December 22, 2020.)

While the revenue outlook is encouraging, Alphatec will need to work on moving toward positive earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as profitability.

Fiscal Year EBITDA Growth
2015 $9.2 Million N/A
2016 $1.5 Million -83.6%
2017 $136,000 -91.0%
2018 -$13.2 Million -9,809.6%
2019 -$30.2 Million -128.4%

(Source: MarketWatch, op. cit.)

A plus is that Alphatec narrowed its generally accepted accounting principles (GAAP) earnings-per-share (EPS) loss in 2019. And based on the company’s cost-control measures, the loss is expected to continue shrinking.

Fiscal Year GAAP Diluted EPS Growth
2015 -$21.53 N/A
2016 -$3.49 -83.8%
2017 -$0.18 95.9%
2018 -$1.20 -570.2%
2019 -$1.09 9.24%

(Source: MarketWatch, op. cit.)

Alphatec Holdings Inc is expected to report a loss of $1.03 per diluted share in 2020, followed by a loss of $0.65 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

The company’s free cash flow has been negative, but I expect the numbers to steadily improve as the company’s revenues rise and its cost-containment improves.

Fiscal Year Free cash Flow (Millions) Growth
2015 -$6.5 N/A
2016 -$21.2 -225.1%
2017 -$16.3 23.0%
2018 -$32.5 -99.2%
2019 -$48.4 -48.8%

(Source: MarketWatch, op. cit.)

Analyst Take

I’m not sure if Alphatec stock will get back to its $46.92 price anytime soon, but a few breaks here and there—along with better execution by Alphatec Holdings Inc—could at least provide strong returns.