AstroNova (ALOT) Declined 20% in Q2

Atai Capital Management, an investment management firm, recently released its second-quarter 2024 investor letter. A copy of the same can be downloaded here. The fund declined 0.6% in the second quarter net of all fees. This is compared to a 4.3% total return for the S&P 500, a 3.3% decline for the Russell 2000, and a 5.3% decline for the Russell Microcap index. In addition, you can check the fund's top 5 holdings to determine its best picks for 2024.

Atai Capital Management highlighted stocks like AstroNova, Inc. (NASDAQ:ALOT) in its Q2 2024 investor letter. AstroNova, Inc. (NASDAQ:ALOT) develops and manufactures specialty printers and data acquisition and analysis systems. The one-month return of AstroNova, Inc. (NASDAQ:ALOT) was -3.86%, and its shares lost 3.54% of their value over the last 52 weeks. On August 22, 2024, AstroNova, Inc. (NASDAQ:ALOT) stock closed at $14.45 per share with a market capitalization of $108.571 million.

Atai Capital Management stated the following regarding AstroNova, Inc. (NASDAQ:ALOT) in its Q2 2024 investor letter:

"AstroNova, Inc. (NASDAQ:ALOT) declined ~20% following what optically seemed to be a disappointing quarter. The top line declined ~7% y/y on a consolidated basis, with both of their segments also showing y/y revenue declines. However, pulling back the curtain reveals that the business is still trending in the right direction, and the issues plaguing the quarter were one-time in nature. Their test and measurement business experienced shipment delays from a supplier, and narrow-body aircraft production continues to be on a slow ramp. Product identification had a $4.5 million order pushed out a quarter, which led to an ~8% decline in revenues that would have instead been double-digit growth. However, despite this revenue decline, operating margins still expanded by 290bps for the segment. Furthermore, the company reiterated this year’s guidance of mid-single-digit organic growth, 13%-14% EBITDA margins, and 100bps of margin expansion in each of the next two years.

Before the quarter, AstroNova made a ~$26M acquisition of MTEX, a Portugal-based label, packaging, and printing solutions manufacturer. This acquisition expanded AstroNova’s product lines to large format printing, direct-to-fabric printing, and direct-to-film printing, to name a few. While we don’t know the exact financial breakdown of MTEX yet, older annual reports from the company point towards them potentially boasting 20%+ EBITDA margins (after adjusting from Portuguese accounting standards to GAAP). Furthermore, if we read through their website and product offerings, they utilize their own printhead and ink delivery technology, which allows them to have better control over their supply chain as well as higher margins on their ink. We would not be surprised to see AstroNova utilizing MTEX’s printhead, ink, and delivery systems in their new and updated product offerings. MTEX has also been growing its topline at a very healthy double-digit clip the past few years (more than doubling revenues since 2020 while also walking away from some lower margin business), and management believes this growth trajectory will continue into future years. Based on our rough estimates, AstroNova likely paid 9x+ EBITDA and 2x+ this year’s revenue for the business. Given the healthy multiples paid and the lack of information we have today, I am not assigning any additional value to this acquisition, but I believe if they can continue their double-digit growth rate, this could prove to be a highly accretive acquisition with numerous quantitative and qualitative benefits. …” (Click here to read the full text)

A technician editing complex data acquisition systems in an analytical workspace.

AstroNova, Inc. (NASDAQ:ALOT) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 3 hedge fund portfolios held AstroNova, Inc. (NASDAQ:ALOT) at the end of the second quarter which was 3 in the previous quarter. AstroNova, Inc.'s (NASDAQ:ALOT) first quarter revenue of $33 million was down 7% compared to the same period last year due to reduced sales. While we acknowledge the potential of AstroNova, Inc. (NASDAQ:ALOT) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In another article, we discussed AstroNova, Inc. (NASDAQ:ALOT) and shared Atai Capital Management's views on the company in Q4 2023. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.