Atai Capital: AstroNova Inc. ($ALOT) Investment Case – Q2 2024

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Atai Capital: AstroNova Inc. ($ALOT) Investment Case – Q2 2024

Atai Capital provides an update on AstroNova Inc. ($ALOT), their largest position since the fund’s launch. Despite AstroNova’s lackluster stock performance, Atai remains highly confident in the company’s potential. Their conviction is based on ALOT’s significant EBITDA growth, attractive valuation, and promising future prospects. Atai views the recent stock price decline as a disconnect between the company’s business performance and market perception, presenting a compelling investment opportunity.

Investment Highlight: AstroNova Inc. (ALOT)

Business Overview

  • Operates in two segments: test and measurement, and product identification
  • Recently acquired MTEX, a Portugal-based label, packaging, and printing solutions manufacturer for ~$26M

Market Position

  • Experienced a ~20% stock price decline following Q2 results
  • Consolidated revenue declined ~7% year-over-year, with both segments showing declines

Performance Analysis

  1. One-time Issues Affecting Q2 Results:
    • Test and measurement business faced shipment delays from a supplier
    • Slow ramp in narrow-body aircraft production
    • $4.5 million order in product identification pushed to next quarter
  2. Underlying Business Strength:
    • Product identification segment saw 290bps operating margin expansion despite revenue decline
    • Company reiterated guidance for mid-single-digit organic growth and 13%-14% EBITDA margins
    • Expects 100bps of margin expansion in each of the next two years

Growth Runway

  • MTEX acquisition expands product lines to large format printing, direct-to-fabric printing, and direct-to-film printing
  • MTEX potentially has 20%+ EBITDA margins and has been growing revenue at a healthy double-digit rate
  • AstroNova may utilize MTEX’s printhead, ink, and delivery systems in new and updated product offerings

Market Dynamics and Opportunities

  • EBITDA has grown from $8M at time of Atai’s purchase to $17M in the most recent quarter
  • Expected normalization of Aerospace segment
  • Numerous cost-saving initiatives in place

Valuation and Expected Returns

  • Trading at less than 5.0x EBITDA and 6.0x UFCF before incremental cash generation
  • Atai expects AstroNova to reach $30M+ of EBITDA in 2026
  • Projecting continued mid-single-digit topline growth with faster bottom-line growth

Other Key Points

  • Stock price performance has been lackluster despite more than doubling EBITDA in less than two years
  • Atai believes the current valuation is “incredibly undemanding” given growth prospects
  • MTEX acquisition could prove highly accretive with numerous quantitative and qualitative benefits

Atai Capital maintains its strong conviction in AstroNova, viewing the current market valuation as a significant opportunity given the company’s robust EBITDA growth, margin expansion potential, and strategic acquisitions. They see the stock’s underperformance as temporary and expect the market to eventually recognize the company’s improving fundamentals.

Click here for the full pro investor letter.


Disclaimer: The information provided in this blog post is for informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content is based on a third-party investor letter and does not represent an endorsement, recommendation, or solicitation to buy or sell any particular security or investment product mentioned.

Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Investors should carefully consider their investment objectives, risk tolerance, and financial situation before making any investment decisions. It is strongly recommended to conduct thorough research and due diligence, and to consult with a qualified financial advisor or professional before making any investment decisions based on the information provided in this blog post or the referenced investor letter. The author of this blog post and the owners of this website are not responsible for any investment decisions made by readers and disclaim any liability for any actions taken based on the content presented herein.


Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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