Alphatec

Though Alphatec Holdings Inc appears cheap due to heavy downward pressure in the past year, we have capped its rating at 3 stars to factor in the possibility that it represents a value trap. The stock currently trades at a 32% discount to our quantitative fair value estimate of $15.61 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The firm's balance sheet bolsters our valuation estimate. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. For example, the firm's debt to EBITDA ratio of 28.2 lies in the top 10% globally. The firm has a high level of debt relative to its asset base, which can signal significant investment in the business or a pending merger. In either case, it may suggest future growth in cash flows. We believe this is a sign that shares could be cheap.

The firm's solid growth is an additional encouraging factor. Consistent revenue and earnings growth indicates a company's potential for increased market share and profitability. The firm's cash flow per share growth, for example, sits in the top 30% globally. This indicates a rapid rate of growth in cash flow available for reinvestment or return to shareholders, which further promotes our favorable price/fair value ratio.

With its quantitative economic moat rating of none, this business is unlikely to consistently outearn its cost of capital without structural protection from competition. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.