Alight (ALIT)

Human capital management provider Alight (NYSE:ALIT) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 2% year on year to $548 million. The company expects the full year’s revenue to be around $2.35 billion, close to analysts’ estimates. Its non-GAAP profit of $0.10 per share was in line with analysts’ consensus estimates.

Company Overview

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE:ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

The Professional Staffing & HR Solutions subsector within Business Services is set to benefit from evolving workforce trends, including the rise of remote work and the gig economy. With companies casting a wider net to find talent due to remote work, the expertise of staffing and recruiting companies is even more valuable. For those who invest wisely, the use of predictive AI in recruitment and screening as well as automation in HR workflows can enhance efficiency and scalability. On the other hand, digitization means that talent discovery is less of a manual process, opening the door for tech-first platforms. Additionally, regulatory scrutiny around data privacy in HR is evolving and may require companies in this sector to change their go-to-market strategies over time.

Alight competes with large HR consulting firms like Mercer and Willis Towers Watson (NASDAQ: WTW), benefits administration specialists such as Fidelity and Empower, payroll providers including ADP (NASDAQ: ADP), and HR technology companies like Workday (NASDAQ: WDAY) and Accenture (NYSE: ACN).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $2.32 billion in revenue over the past 12 months, Alight is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Alight struggled to generate demand over the last five years. Its sales dropped by 1.9% annually, a poor baseline for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Alight’s recent performance shows its demand remained suppressed as its revenue has declined by 11.9% annually over the last two years.

This quarter, Alight’s revenue fell by 2% year on year to $548 million but beat Wall Street’s estimates by 1.2%.

Looking ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Alight was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for a business services business.

Looking at the trend in its profitability, Alight’s operating margin decreased by 8.2 percentage points over the last five years. Alight’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Alight generated an operating profit margin of negative 1.5%, up 5.7 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Alight’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Alight reported EPS at $0.10, down from $0.14 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Alight’s full-year EPS of $0.53 to grow 18.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Alight has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.3% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Alight’s margin dropped by 1.3 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Alight’s free cash flow clocked in at $44 million in Q1, equivalent to a 8% margin. The company’s cash profitability regressed as it was 3.4 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Alight historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.7%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

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. Unfortunately, Alight’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Alight reported $223 million of cash and $2.02 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $581 million of EBITDA over the last 12 months, we view Alight’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $59 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Alight blew past analysts’ EPS guidance for next quarter expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 4.7% to $5.48 immediately following the results.

Updated: May 19, 2025 at 12:00 AM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Alight, we’re out. First off, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its diminishing returns show management's prior bets haven't worked out.

Alight’s P/E ratio based on the next 12 months is 9.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $9.57 on the company (compared to the current share price of $5.76).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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