Alfi, Inc. (ALF), which is based in Miami Beach, Fla., provides an artificial intelligence (AI) enterprise SaaS platform and develops interactive digital out-of-home advertising experiences. ALF’s shares have soared 37.2% over the past month on investors’ optimism surrounding the commencement of its installation of 10,000 Alfi tablets in Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT) - operated vehicles in the Orlando and Tampa areas. 

However, its share price has declined 34.7% over the past five days. The stock closed Friday’s trading session at $9.18, which was 59.2% below its 52-week high of $22.50, which it hit on June 28.

The meme stock craze has been fueling ALF’s rally—the company saw its market cap balloon to $201 million from $15.5 million during its market debut in May 2021. While the commencement of the AI tech company’s SaaS technology for digital advertisement at Belfast International Airport kiosks and its recent South Florida call center operations bode well for the stock, the company lacks fundamental strength. And its sky-high valuation and negative profit margin could make it harder for the stock to maintain the rally.

Click here to check out our Software Industry Report for 2021

Here is what we think could influence ALF’ performance in the near term:

Share Repurchase Program

On June 23, ALF Board of Directors authorized a $2 million share repurchase program for the company’s outstanding common stock. While ALF expects the program to enhance stockholder value, spending cash on shares could  negatively affect its current cash balance. Moreover, the stock’s higher valuation could be a disadvantage in this case. So, ironically, the share repurchase could cause ALF’s stock to suffer a pullback in the near term.

Weak Financials

ALF reported  $17,450 in net revenue in the first quarter ended March 31, 2021. Its total operating expense came in at $2.99 million for this period, compared to $9,563 in the prior-year period. The company reported a negative $87,056 gross margin f. Furthermore, its net loss came in at $3.18 million, compared to $16,803 in the first quarter of 2020. ALF reported a $0.71 loss per share over this period.

ALF’s trailing-12-month ROA and ROTC are negative 122% and 46%, respectively. Also, ALF’s trailing-12-month cash from operations came in at negative $5.17 million.

Sky-High Valuation

In terms of trailing-12-month EV/Sales, ALF is currently trading at 6,970.40x, which is  significantly higher than the 4.45x industry average. Also, the stock’s 1,842.63 trailing-12-month Price/Sales ratio compares with the 4.23 industry average.

Unfavorable POWR Ratings

ALF has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ALF has a C grade for Growth and Value. The stock’s inadequate financial strength and stretched valuation are reflected in these grades.

It  has a D grade for Stability, indicating that the stock is more prone to volatility than its peers.

In addition to the grades we’ve highlighted, one can check out additional ALF ratings for Sentiment, Momentum, and Quality here.

ALF is ranked #51 of 59 stocks in the D-rated Software – Business industry. For more top-ranked stocks in this industry, click here.

Bottom Line

Even though ALF has garnered significant investor attention because of its unique digital out-of-home advertising and its innovative UBER and LYFT tablet installations, its current share repurchase program could negatively impact its stock price performance in the near term. In addition to that,  its premium valuation does not justify its inadequate financials. So, we believe the stock is best avoided now.

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