Will ALS Ltd flop or fly?

Shares in global testing and analytical laboratory services company ALS Ltd (ASX: ALQ) are volatile, with prices up 1.5% at the time of writing to $7.45 – a rise from $5.80 a year ago.

ALS Ltd operates four main testing services divisions – minerals, life sciences, energy and industrial and is represented in Australia, Africa, Asia, Europe and the Americas.

ALS Ltd has an interesting history – the company began in 1976 and was picked up as a subsidiary of soap and chemical manufacturer Campbell Bros in 1981 while focusing on analytical tests for the oil and gas industry.

ALS flourished as the mining boom took hold, eventually consuming its Campbell Bros parent and changing its name in 2012 to what it is today.

ALS Ltd share prices sunk to $1.54 in early 2009 from a pre-GFC price of about $6.50, hitting a high of $12.98 in 2012 before falling away to a low of $2.93 again in early 2016 and improving back to its $7.45 price today.

There has been a slight trend upwards recently.

ALS Ltd will report its full year results on March 28 and it will be interesting to see if it can reach its FY18 NPAT estimate of between $135 million and $145 million as this result will likely have an impact on which direction the share price travels in the foreseeable future.

ALS has spent time and money diversifying its offering, adding laboratory inspection and certification to its repertoire, but with a resurgence in the resources sector and 42-years in the game the company should turn out some pretty solid returns for FY18.

There is no denying ALS Ltd is a global leader in the laboratory services space – it has hundreds of offices in more than 65 countries with a good reputation, high-standards and professionalism.

But perhaps it’s a little too diversified?

ALS run at a PE ratio of about 26 and has a weak dividend yield with only partly-franked returns, plus a cache of about $700 million debt – perhaps some shareholders would have preferred some, or all, of the recent $175 million buyback directed towards debt repayment?

Still, with a market cap of $3.6 billion and a high-quality board, Credit Suisse was optimistic about ALS’s future in mid-2017, upgrading its share price target to $7.80, which it is floating in the realm of right now.

If the FY18 results handed down this month are strong the share price could zoom upwards.

Definitely one to watch.

Foolish takeaway

Focusing on getting debt down would be a good start, and this stock is one to watch when its results come out as the company is targeting EBITDA of more than $500 million on $2.2 billion in revenue by 2022.

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