The Alstom Enigma: Is the Stock Rally Justified or Overheated?

Let’s crack this case wide open, folks. Alstom SA (EPA:ALO) has been the talk of the town lately, with its stock price surging like a runaway train—27%, 31%, even 36% in recent months. But here’s the twist: while the market’s buzzing with excitement, analysts are whispering about overvaluation and slowing growth. So, is this rally a justified celebration or a red flag waving in the wind? Let’s put on our detective hats and dig into the numbers.

The Stock Surge: Hype or Substance?

First off, let’s talk about that stock price. Alstom’s shares have been on a tear, but the real question is whether this rally is built on solid fundamentals or just hype. The market seems to be pricing in a rosy future, with trading multiples sitting pretty above industry averages. But here’s the kicker—some analysts are calling the stock about 25% overvalued. That’s a pretty big discrepancy, and it’s got me raising an eyebrow.

The company’s first half 2026 results are due out on November 13, 2025, and that’s when we’ll get a clearer picture. The full-year 2024 results showed revenue beating expectations at €17.6 billion, up 6.7% year-over-year. But here’s the plot twist: net losses were reported. So, while the top line looks good, the bottom line is still in the red. That’s a classic case of “looks good on paper, but let’s see if it holds up.”

Growth Trajectory: Speeding Up or Slowing Down?

Now, let’s talk growth. Alstom’s been on a roll, averaging 18% revenue growth over the past five years. That’s impressive, but the future looks a bit murkier. Analysts are predicting revenue growth to slow down to around 4% annually, which is below the broader machinery industry’s projected 5.4% growth. That’s a red flag, folks. If Alstom can’t keep up with its peers, it’s going to fall behind.

But here’s the interesting part: earnings are expected to grow at a whopping 27.6% per annum, with EPS increasing by 26.8%. That’s a big divergence from revenue growth, and it suggests that Alstom might be improving its operational efficiency or expanding margins. But can they keep this up? That’s the million-dollar question.

The return on equity (ROE) is currently at 10.8%, which is in line with the industry average of 10.6%. That’s a good sign, but we need to see if this profitability is sustainable. The price-to-sales (P/S) ratio is 0.5x, which is close to the industry median of 0.6x. So, on the surface, the stock doesn’t look drastically mispriced. But here’s the thing: P/S ratios can be misleading. We need to look at the bigger picture, including the slowing growth and potential industry disruption.

The Bearish Case: Is the Rally Built on Shaky Ground?

Now, let’s talk about the bearish side of the story. Some analysts are predicting Alstom’s revenue will grow by only 2.8% annually over the next three years. That’s a far cry from the 18% growth we’ve seen in the past. And here’s another worrying stat: Alstom’s earnings have historically declined at an average annual rate of -41.6%, while the machinery industry has seen 17% growth. That’s a huge gap, and it’s a sign that Alstom’s been struggling to turn a profit.

But wait, there’s a silver lining. Alstom has managed to move from loss to profitability over the past five years. That’s a positive sign, but it’s not enough to erase the concerns about slowing growth and historical earnings declines. The company’s financial health is being monitored by 50 analysts, with 13 contributing to revenue and earnings estimates. That’s a good level of transparency, but the sentiment has been cautiously bearish since the March 2019 earnings announcement.

The Bottom Line: What’s Next for Alstom?

So, what’s the verdict? Alstom’s recent commercial momentum is a good sign, but the long-term sustainability of this momentum is still up in the air. Estimating the fair value of Alstom using a 2-Stage Free Cash Flow to Equity model yields a value of €17.21, which is significantly below the current share price of €19.80. That’s a pretty strong argument that the stock may be overvalued.

In conclusion, Alstom SA is a mixed bag. The recent stock rally and positive revenue figures are encouraging, but the concerns about valuation, slowing growth, and historical earnings declines can’t be ignored. The market seems to be pricing in a favorable outlook, but this optimism is at odds with some analyst predictions and fundamental valuations. Investors should weigh the potential risks and rewards carefully, keeping a close eye on the company’s upcoming earnings report on November 13, 2025, and monitoring broader trends within the rail industry. A thorough understanding of Alstom’s financial health, growth trajectory, and competitive landscape is crucial for navigating this complex investment opportunity. So, is Alstom a buy, a hold, or a sell? That’s for you to decide, folks. But one thing’s for sure: this case is far from closed.