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We came across a bullish thesis on Alta Equipment Group Inc. (ALTG) on Twitter by northeasternsvf. In this article, we will summarize the bulls’ thesis on ALTG. Alta Equipment Group Inc. (ALTG)'s share was trading at $7.97 as of Nov 13th. ALTG’s trailing and forward P/E were 69.50 and 222.22 respectively according to Yahoo Finance.
A construction crew working in the field with earthmoving equipment illuminated by a setting sun.
Alta Equipment, a leading heavy-equipment distributor with 85 dealerships across North America, has positioned itself as a key player in the equipment distribution market through strategic partnerships with OEMs like Heister Yale and Volvo. The company operates in diverse sectors, including manufacturing, food and beverage, and waste, with a key focus on selling lift trucks, earthmoving equipment, and construction-oriented products. Since its 2020 IPO, Alta has pursued an aggressive acquisition strategy to expand its geographic footprint, doubling its topline and securing a dominant position in the North American market, where it now covers approximately 20% of sales. Alta's unique advantage lies in being the exclusive distributor for its OEM partners within its geographies, insulating it from competition and strengthening its market share in the consolidation-driven industry.
The company’s growth strategy, centered on acquiring smaller dealerships, comes with the downside of increasing leverage. Alta has accumulated debt, which was initially criticized by the market, but the company is positioning itself to reap the benefits of its acquisitions in the coming years. As equipment warranties expire, Alta will start receiving higher-margin parts and service revenue, which is expected to significantly improve profitability. Despite a temporary softening in equipment demand, which has affected investor sentiment, the high-margin recurring revenue from Alta’s parts and service segment remains a strong driver for future growth. The parts and services segment, contributing 29.5% of revenue, offers margins of up to 60%, compared to 18-20% from equipment sales. Alta’s focus on maintaining a skilled workforce to provide quality service, including partnerships with trade schools, ensures that it can meet demand even amid tight labor markets.
In addition, Alta’s rent-to-sell model enhances fleet utilization and offers further revenue potential. By renting equipment before selling it as used inventory, Alta maximizes the profitability of its fleet. Although the rental segment impacted cash flow in 2023, this model has proven effective in generating future cash inflows when the equipment is sold. Despite some cash flow challenges in the short term, Alta’s strategy of turning over its fleet and continuously adding new equipment positions it well for long-term growth.