Alamo (ALG)

Specialized equipment manufacturer for infrastructure and vegetation management Alamo Group (NYSE:ALG) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 4.7% year on year to $420 million. Its non-GAAP profit of $2.34 per share was 11.3% below analysts’ consensus estimates.

Company Overview

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Agricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.

Alamo’s peers and competitors include Lindsay (NYSE:LNN) and AGCO (NYSE:AGCO)

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Alamo grew its sales at a mediocre 6.6% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Alamo’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.3% annually. Alamo isn’t alone in its struggles as the Agricultural Machinery industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Alamo reported modest year-on-year revenue growth of 4.7% but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Alamo has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 25.5% gross margin over the last five years. Said differently, Alamo had to pay a chunky $74.50 to its suppliers for every $100 in revenue.

Alamo produced a 24.2% gross profit margin in Q3, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Alamo has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.1%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Alamo’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Alamo generated an operating margin profit margin of 8.9%, down 1 percentage points year on year. Since Alamo’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Alamo’s EPS grew at a remarkable 13.2% compounded annual growth rate over the last five years, higher than its 6.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Alamo’s earnings to better understand the drivers of its performance. As we mentioned earlier, Alamo’s operating margin declined this quarter but expanded by 1.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Alamo, its two-year annual EPS declines of 5.7% mark a reversal from its (seemingly) healthy five-year trend. We hope Alamo can return to earnings growth in the future.

In Q3, Alamo reported adjusted EPS of $2.34, down from $2.38 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Alamo’s full-year EPS of $9.94 to grow 20.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Alamo has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.9%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Alamo’s margin expanded by 3.3 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Alamo’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 11.6%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Alamo’s ROIC averaged 2.1 percentage point increases each year. This is a good sign, and we hope the company can keep improving.

We enjoyed seeing Alamo beat analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.7% to $168.28 immediately after reporting.

Updated: December 4, 2025 at 9:05 PM EST

When considering an investment in Alamo, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Alamo’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its gross margins are lower than its industrials peers. On top of that, its low free cash flow margins give it little breathing room.

Alamo’s P/E ratio based on the next 12 months is 14.7x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $219.75 on the company (compared to the current share price of $166.80).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.