Stock Analysis: Future looks bleak for Alcoa (AA) as market crisis worsens

The market crash triggered by the covid-19 outbreak has added to the troubles of Alcoa Corporation (NYSE: AA), which is already facing multiple challenges including falling aluminum prices, slowing economic activity in key markets and tariff-related uncertainties.

Alcoa’s stock, which has been on a steady downtrend since last year, recently dropped below $10 for the first time in more than three decades as investors continued to withdraw funds amid weakening sentiment. Even at such a low price, market watchers are skeptical about the prospects of investing in the stock. Nevertheless, it seems to have bottomed out and is showing signs of recovery.

China Woes

The continuing dip in the demand for aluminum and the resultant oversupply in market do not bode well for the metal giant, which is fast losing market share to its Chinese counterparts. Earlier, Alcoa’s CEO Roy Harvey had expressed concern over the high subsidies being offered by China to its aluminum industry, creating a “demand-supply imbalance” globally. It is a fact that the rapid growth in China’s aluminum exports has contributed to the decline in aluminum prices.

Long Wait

For shareholders, it has been a long wait for returns. There used to be an uptick in optimism every time the company divested its non-performing assets. They will be keeping a tab on the management’s ongoing initiatives to return to high-growth mode, such as implementation of a new operating model, continuing asset-review process and cost-reduction. A few years ago, Alcoa had separated the Arconic business through a spin off, which was followed by more such streamlining initiatives.

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On the positive side, the stock is unlikely to stay at the current levels for long and analysts expect the value to more than double later this year. But, the underlying weakness that prevents the company from getting back on track should discourage prospective buyers. Moreover, the recent selloff has given investors ample opportunities to put their money in companies with better stability and growth potential.

Q4 Outcome

For the December-quarter, Alcoa reported a narrower net loss of $0.31 per share, which came in below Wall Street’s prediction. At $2.4 billion, net sales were down 38% from last year and slightly below the consensus estimate. The company has struggled to stay profitable in the past three years.

The stock ended the last session at a multi-year low of $6.55, after losing progressively over the past two years. The shares lost about 69% so far this year and 78% in the past twelve months.