ALTO

We rate Alto Ingredients, Inc. (ALTO) as a Hold with a composite score of 64.2/100 at a current price of $2.42. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (97th percentile) and momentum (76th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (32th percentile) and stability (51th percentile) tempers our overall conviction. We assign a Narrow Moat rating (41/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Alto Ingredients, Inc. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 64.2/100 places it at rank #334 in our full 7,333-stock universe. At $81M in market capitalization, Alto Ingredients, Inc. is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 2% and favorable momentum (76th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 3% (-39.9pp vs sector) narrow to operating margins of -0% (-1.5pp vs sector) and net margins of -1.3%, yielding a gross-to-net conversion rate of -50%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $2.42, Alto Ingredients, Inc. appears undervalued relative to its fundamentals. Our value factor score of 97/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 12.5x (a 44% discount to the sector median of 22.3x), EV/EBITDA of 12.2x (near the sector median), P/B of 0.8x, P/S of 0.2x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to Alto Ingredients, Inc.. The stock presents a balanced risk profile: current negative profitability (net margin -1.3%) and low beta of 0.64 — while defensive, this may indicate limited upside participation in bull markets. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: current negative profitability (net margin -1.3%); low beta of 0.64 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 51th percentile and quality factor at the 67th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our medium uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Alto Ingredients, Inc.'s capital allocation as Poor. Key concerns include low returns on equity (-4.9%), negative profitability, weak asset returns (ROA -2.8%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Alto Ingredients, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Alto Ingredients, Inc. receives a Hold rating with a composite score of 64.2/100 (rank #334 of 7,333). Our quantitative framework assigns a Narrow Moat (41/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 65/100.

Our analysis supports a neutral stance on Alto Ingredients, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.