Buy Alcoa Stock at $26?

Alcoa (NYSE:AA) has faced significant headwinds recently, with the stock experiencing a dramatic 32% decline this year. While this might alarm investors, historical context suggests this volatility isn’t unprecedented for the metals giant. Looking back at previous market downturns reveals this isn’t uncharted territory for Alocoa.

During the 2022 inflation shock, Alcoa dropped a substantial 75%. As dramatically, in 2020, amid pandemic uncertainty, the stock fell 75%. For investors seeking a potentially more stable and high-performing alternative, consider the Trefis High Quality portfolio. This strategy has outperformed the market with over 75% returns since its inception, as demonstrated by its HQ performance metrics.

Image by Danilo from Pixabay

Alcoa’s Fundamental Strengths Remain Intact

Despite the market’s current pessimism, Alcoa’s underlying business fundamentals tell a more optimistic story:

• Alcoa is one of the world’s largest producers of aluminum, bauxite, and alumina.
  • It has a vertically integrated supply chain, which gives it more control over pricing and operations from raw materials to finished product.
  • Aluminum is in high demand for electric vehicles (EVs), aerospace, renewable energy infrastructure, and construction. As industries shift toward lightweight and sustainable materials, demand for aluminum is projected to grow—and Alcoa is well-positioned to meet it.
• Alcoa’s Revenues have grown considerably over recent years.
  • Its top line remained flat over the last 3 years
  • Its revenues have grown 12.7% from $11 Bil to $12 Bil in the last 12 months
  • Also, its quarterly revenues grew 34.3% to $3.5 Bil in the most recent quarter from $2.6 Bil a year ago
• Alcoa’s profit margins are much at par with most companies in the Trefis coverage universe.
  • Alcoa’s Operating Income over the last four quarters was $828 Mil, which represents a mediocre Operating Margin of 7%
• Alcoa’s Operating Cash Flow (OCF) over this period was $622 Mil, pointing to a mediocre OCF-to-Sales Ratio of 5.2%
• Alcoa’s balance sheet looks fine.
  • • Alcoa’s Debt figure was $2.8 Bil at the end of the most recent quarter, while its market capitalization is $6.3 Bil (as of 4/7/2025). This implies a moderate Debt-to-Equity Ratio of 36.0% (vs. 19.0% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
    • Cash (including cash equivalents) makes up $1.1 Bil of the $14 Bil in Total Assets for Alcoa.  This yields a moderate Cash-to-Assets Ratio of 8.1% (vs. 14.8% for S&P 500)

The Value Proposition

Alcoa stock currently trades at 0.7x trailing revenues, aligning with 3.2x for the broader S&P500 index, and below its last-three year average P/S ratio of 3.8x. From a valuation perspective, investors should consider that a company with a $6 billion market cap generating $0.6 billion in cash flow represents a 10% yield – significantly higher than most bank offerings. When coupled with nearly 20% growth, the long-term value proposition becomes even more compelling.

Navigating Market Irrationality

The metal company has weathered severe storms before and emerged stronger. While the immediate outlook remains challenging, Alcoa is promising because it blends legacy industrial strength with a future-forward focus on sustainability, innovation, and strategic materials.

Surely, markets can remain irrational for extended periods, particularly when fear dominates sentiment. For long-term investors with patience and conviction, the current Alcoa pullback may represent an opportunity. However, those uncomfortable with such volatility might consider a hedged approach or diversifying within a broader portfolio, such as the Trefis  Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors, or consulting a financial advisor with experience in bear markets could be beneficial. Remember, significant wealth can be generated in the market by those who maintain a calm and strategic approach during periods of volatility.

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates