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Is Alcoa A Good Investment After Its Positive Earnings?

Alcoa reported strong earnings results reflected by the rebound in the price of aluminum after the commodity’s major slump previously.

Alcoa (NYSE: AA) might not be the most exciting company in the world, but it does play a key role in the construction and industrial sector. It’s a producer of aluminum — the commodity that saw a 62% increase in its price year-over-year (YoY).

What does Alcoa do?

Alcoa is a miner and producer of all things aluminum, the lightweight, recyclable metal that we might not think of often, but the use case is all around us. Think of power lines, electronics, home appliances, high-rise buildings as well as the manufacturing end of things; ships, cars, spacecraft, and airplanes. It’s no small market either, estimated to be worth $193 billion and growing at a modest 5.8% compound annual growth rate (CAGR).

What differentiates Alcoa from its competitors is its position in the value chain — it mines the material itself — something many competitors don’t do. The company is also implementing a sustainability push towards net-zero emissions along with some of its customers like Audi, with both being a part of the Aluminium Stewardship Initiative (ASI).

Earthwatch, Greening Australia, Nature Bridge, and the National Wildlife Federation are some of the partners of the Alcoa Foundation, with this clean resources push possibly becoming a key selling point as environmental, social, and governance (ESG) trends continue. 

Alcoa’s Q4 2021 results.

Alcoa reported $3.3 billion in revenue in Q4, and total revenue for 2021 was $12.2 billion, a 31% increase from the year before. The company reduced its debt from $3.4 billion to $1.1 billion from late 2020 to the end of 2021, and Alcoa has built up a cash pile of $1.9 billion — a sizable amount for a company with an $11 billion market capitalization.

Is Alcoa a good investment?

Alcoa is the type of company that plays a role in the production of everyday products in our lives, but it’s a company that will be out of many investors’ realm of expertise and understanding, just based on a lack of industry insight.

It has also proven to be reliant on deals in the past with the likes of Airbus and Boeing, which can boost revenue significantly, but in the same way, can cause major headwinds if supply arrangements fall through.

It’s one of those companies where the demand will be there for its materials for years to come, but there could be fluctuations in the commodity markets that impact revenues and margins continuously. It will depend on your investment thesis in this case, but your money might be better parked somewhere else if it’s out of your realm of expertise.

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