With analysts looking for long-term EPS growth as high as 30% a year, Allient (ALNT) looks to offer a very attractive valuation if the company delivers on that expectation, explains Doug Gerlach, editor of SmallCap Informer.

The heart of Allient’s business is motors, but its components are found in many diverse products seeing increased demand, such as robotic surgery, industrial automation, electric motors and vehicles, and space exploration.

We like discovering the “companies behind the companies” — those businesses that make the components and supplies that are used in products that are used every day across a spectrum of industries, and Allient surely fits the bill.

Revenues have moved on a stable pathway since 2013, growing at 12.6% per year on average but accelerating in the last two years at an average 17.1% pace. Revenues in fiscal 2022 totaled $503.0 million, halfway to the company’s goal of becoming a billion-dollar business.

EPS have been less consistent, turning in an overall 11.8% annualized rate of growth in the same period. Results since 2020 have been affected by the pandemic and related factors such as supply chain disruptions, onshoring and reshoring of manufacturing.

Management cautiously points to 2024 with an expectation that the company’s growth will return to pre-Covid 2019 patterns. Management cites several factors that present the company with opportunities to grow.

The first, electrification, sees internal combustion engines and hydraulics systems used in transportation being supplanted by the adoption of electrical systems. This includes in defense systems as well as for land, sea, and air networks. This trend is global.

The second factor is energy efficiency. Worldwide, a massive effort is underway to massive effort to reduce energy consumption and operating costs. Today, about 40% of all global electricity consumption is derived from motors, so even minor increases in efficiency can make a big difference.

The third trend is a move towards increasing industrial automation. This addresses an ever more challenging labor environment, advances reshoring efforts that serve regulatory and supply chain interests, and drives overall efficiency and productivity.

The stock is presently selling at a P/E ratio of 18.2, which is 74.0% of its average P/E of the last five years. We calculate that the stock could reach $79 and is a buy up to $38. Our downside price is $24, and the current price represents a reward/risk ratio of 23.5-to-1. The potential total annual return with a small dividend is 24.9%.

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