Alpha Technologies Group Inc. posted a strong earnings increase Tuesday and its stock now trades 163% above a year ago. But not a single Wall Street analyst follows the South Pasadena maker of devices that bleed off heat generated by computers and other machines.
Alpha, which has about 400 employees scattered across four factories in Southern California, is an example of a profitable and growing low-tech company struggling to gain notice by the big brokerage and research houses that set Wall Street's agenda.
"If your last name isn't 'dot-com' or you're not a large company, it is hard to get attention on Wall Street," said Lawrence Butler, Alpha's chief executive.
Even after Tuesday's gain--its shares rose 72 cents, or nearly 8%, to close at $10.13 on Nasdaq at a 52-week high--Alpha's market value was still below $67 million, well under the threshold most Wall Street investment houses look to before launching coverage and issuing buy and sell recommendations to clients.
"And every year that threshold for a company to be considered seems to go up," Butler said.
Companies the size of Alpha need to show a consistent record of earnings growth that will push their market value above $100 million before Wall Street will jump in, according to Todd Jadwin, managing director of investment banking at Banc of America Securities in Los Angeles. That's because mutual funds and other institutional holders can then trade the stock without their actions affecting the price.
"It is imperative for companies themselves to create a good story and investor appetite and then Wall Street will follow," Jadwin said.
In announcing its sixth straight quarter of growing profit, Alpha said it earned $2.2 million in its second fiscal quarter, ended April 30, a 151% gain over earnings of $861,000 for the same period a year earlier. Revenue grew 11% to $18 million from $16.2 million in the same quarter a year earlier.
Although Alpha has yet to win an official nod from Wall Street, some traders have caught on. More than 580,000 shares changed hands Tuesday, almost 9% of its outstanding shares. By comparison, its average daily trading volume last week was 34,000.
"This is a case of people discovering the stock on its own," said Butler, who added that his first meeting with a Wall Street analyst came only last month.
Alpha is benefiting from increased focus on the more profitable portions of its business, improved management of its manufacturing operations and favorable trends in the industry.
Alpha makes what generally comes under the label of "thermal management products," jargon for aluminum extrusions that have rows of wings, or fins, that extend from their base. The wings provide large surface areas in condensed spaces that can effectively dissipate unwanted heat generated by electronic components. Thermal products account for 70% of what will be an estimated $80 million in annual sales by Alpha this year.
Though their manufacture is low-tech compared with the equipment they plug into, these aluminum extrusions have had to become more customized, more efficient and smaller to keep up with improvements in electronics.
Aavid Thermal Technologies Inc. of Concord, Mass., estimates the worldwide market for such devices is about $4.1 billion, and growing at an annual rate of about 13%. Aavid is the market leader, heading toward an estimated $250 million in sales this year, and Alpha is the No. 2 company domestically. However, no one company dominates the global market.
Alpha's products go into industrial and consumer electronics made by Hewlett-Packard, General Electric, Delco, Gateway, Chrysler, Motorola, Harman-Kardon and others.
The rosy financial outlook at Alpha is a dramatic reversal from difficult days in 1997 and 1998, when it lost a combined $6.2 million.
The problems arose out of the company's buyout by a group controlled by Butler and his father, Marshall Butler, in 1992. The Butlers still control 33% of Alpha's shares. They had purchased Synercom Technology Inc., a Houston software developer, then sold off the software operations and used the company's cash to purchase small industrial companies. Eventually its name was changed to Alpha.
But the Butlers had trouble managing the company's manufacturing operations. They hired Robert Streiter as president and chief operating officer in 1998. Streiter previously was a manager at AVX Filters Corp. and was handed the job of turning the manufacturing operations around.
The company worked last year to scuttle lower profit and money-losing lines of products and to focus on selling to customers seeking customized forms of Alpha's heat sinks and connectors--work that carries higher profit margins.
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After a slump caused by problems in its manufacturing operation, once-obscure Alpha Technologies Group Inc. has reported six straight quarters of growing profit and seen its stock nearly triple in the last year. Monthly closes and latest: Tuesday: $10.13, up 72 cents
Source: Bloomberg News
At a Glance
* Company: Alpha Technologies Group Inc.
* Business: Manufactures thermal management products and electronic connectors
* Headquarters: South Pasadena
* Chairman, CEO: Lawrence Butler, 37
* President, COO: Robert Streiter, 39
* 1999 revenue: $65.2 million
* 1999 earnings: $4.2 million
* Employees: 640 nationwide, nearly 400 in Southern California
* History: Went public in 1985 as Synercom Technology Inc. in Houston
* Price-to-earnings ratio: 11