Often when a reader submits a stock for me to analyze, it’s because the stock is doing poorly. They want to know what I think about its outlook and whether I think it’s still a good stock.

That’s not the case with this week’s “Readers’ Choice” Stock of the Week.

We’re looking at an industrial tech company that’s been on a rocket ride… but that rocket ride has stalled out. So where does the stock go next?

To answer that, we need to run the stock through my Growth-Value-Income system, which includes my No. 1 metric (cash return on capital invested, or CROCI).

With those results in hand, plus a look at the company’s financials, we have a clear picture on how the stock is doing and where it’s headed.

To my delight, this one is a great audience pick with a lot of surprises.

Get the details on the stock – plus its ticker – in the latest episode of Stock of the Week.

Click on the image below to watch it.

Transcript

Hi, everyone. I’ve got a reader’s Stock of the Week.

As you know, with my GVI Investor research service, what you get is detailed analysis of the stocks that I like, but I’ve also invited readers to ask me and my hedge fund team to analyze any stocks they happen to be looking at.

And I think we’ve got a really good one this week, actually, because sometimes… it’s usually stocks that have done really badly that the readers want me to analyze, picks that they’ve picked that have done badly, and they want my opinion on their picks. But not the case with this one.

We’ve got Atkore Inc. (ATKR). Now, they’re a diversified industrials company – leading manufacturer of electrical, mechanical and safety infrastructure.

The company’s got net sales of just under $1 billion. So not massive, but certainly by no means a small company. And that electrical and safety infrastructure means that their net sales in that segment are the strongest of the two lines that they’ve got.

So is it a new company? No, it’s been around since 1959. Based out of Illinois. So yeah, it’s been there for quite a while. Solid, stable in that regard.

But look at this. Let’s just have a go through some of those financials. What do we find? Well, since 2019… the company in 2019 was up 104%. 2020, a bit of a flat year. 2021, up 170%. Now, it’s been flat this year. And I suspect what the reader wants to know is, “Well, are we going to get some of those great gains that we’ve had in previous years?”

Well, when I look at the Growth-Value-Income algorithm, which I have… which is my unique proprietary algorithm for evaluating companies based on their valuation, profitability to their share price, revenue growth, dividend deals and other factors… that’s a 7. So anything which is 7, 8, 9 meets my minimum criteria. So no issues there for me.

CROCI, cash return on capital invested… 34%. Wow, really good. Really strong numbers. That’s the capital they’re generating – the cash, rather, they’re generating on the capital that they have invested into their business. And the reason it’s an important number that I like looking at is companies in the top quartile by CROCI, by cash return on capital invested, tend to perform the best. They tend to generate about 30% per annum returns. Not every year. It’s not like bank interest. Not every year, but over the long term. So really happy with that.

But as I say, it’s stagnated. It’s catching its breath this year, let’s put it that way.

Sortino nearly of 1. That means for the risk or volatility that the company is providing, you’re getting a return which is commensurate. So that’s what 1 essentially means. We actually want the number to be even higher than 1, but I can live with that. It’s not a major problem.

15% alpha. That’s the amount which it’s outperforming the market, generally. Yeah, that’s fine. Not a number which I’m particularly worried about, but it’s good.

Volatility’s a bit higher than I’d like. Really, I want things which are under 20%. And the market tends to, in downward markets in particular, value those companies with lower volatility.

So let’s just have a look at some of the other financial factors. Well, the market in this environment is particularly good for companies which are undervalued. Now, this has got a forecast price-to-earnings of 5.4. That’s low. You’ll know that’s a low number. It’s green. It’s got greens on all of those.

Okay, so in terms of quality, return on capital employed, return on equity, they’ve really managed, given that it’s an old company, or because it’s an old company – they’ve really managed to convert sales into profits, convert sales into cash. And that’s good.

Turnover has spiked. Borrowing is pretty steady. Operating cash flow has boomed. Profits have boomed, as you can see there. And you can see how turnover has led to profits, partly through the mechanism of cash flow. Okay? That’s what they’ve been able to do even though capital expenditure has somewhat increased. So all good in all of those.

Are there any sort of red lights? Well, if I really wanted to be picky, I might say gearing or borrowing, but it’s not really a major problem for the company at all. So not really negatives.

Let’s have a look at this longer-term chart. What do I see with Atkore? Well, what I can see is, it’s somewhat overbought. If you look at the second half of that, bottom half of that graph, the MACD – the moving average convergence/divergence – it’s a measure of momentum. And you can see, yes, the company’s near all-time highs. And it’ll probably, I suspect… it will continue upward, all other things being equal. I think that’s more likely than less, despite market headwinds.

Like I said, my main concern being it is somewhat overbought. In other words, I’d love to have seen that momentum indicator closer to zero, not at the level it’s at, 2,000. As you saw in October 2020, when it was closer to zero… and then you got that massive fivefold increase in the price. So I would have preferred to have seen that, but can’t have everything. It’s a bit overbought. Companies can remain overbought for a long time. But overall, a great audience pick.

So I have to say thank you to my readers for coming up with that one. Thank you very much.