Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Aluminum Corp of China Destined for Greatness?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Aluminum Corp of China (NYSE: ACH  ) , or Chinalco, fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Chinalco's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Chinalco's key statistics:

ACH Total Return Price Chart

ACH Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(2,375.1%) vs. (1,033.8%)


Improving EPS



Stock growth (+ 15%) < EPS growth

(51%) vs. (1,001.3%)


Source: YCharts. * Period begins at end of Q2 2010.

ACH Return on Equity Chart

ACH Return on Equity data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Chinalco has been hit by the same headwinds plaguing many of its peers in the metals industry, and as such, the aluminum producer mustered only one out of seven possible passing grades -- its erratic dividend, last paid in 2011, would make this one out of nine if we included free cash flow payout ratios and dividend growth as criteria as well. Despite promising revenue growth over the past three years, Chinalco's profit margins have collapsed due to rising expenses and oversupply in the aluminum market. As a result, Chinalco's stock has underperformed over the past couple of years as investors stick to the sidelines of a weak industry. Will Chinalco be able to move past these weaknesses and rebound, or is this leading global aluminum company going to be tarnished for some time? Let's dig a little deeper to see what the future may hold.

Over the past few years, a number of aluminum producers have been forced to operate at heavy losses due to a combination of increased costs of production, excessive supply, and weakening demand in the worldwide aluminum market. As a result, Chinese aluminum producers, which comprise about 44% of global production, have been plagued by declining spot prices that they've been unable to overcome. Fool contributor Matthew Frankel notes that the aluminum producers have started refocusing on their most efficient operations and have made production cuts to maintain long-term profitability. Quite recently, Chinalco suspended a $1.6 billion Malaysian aluminum smelter project, which would have added 370,000 tons per year of capacity.

According to Bloomberg, global aluminum consumption is expected to grow by 6% annually over the next several years. However, worldwide aluminum production will decline by 3.2 million tons by the end of next year, which might improve aluminum prices by around 13%. Fool contributor Matthew Frankel notes that Chinalco has announced that it will slash its production levels by 9% in order to help boost aluminum prices. However, Fool contributor Dan Carroll points out that the Chinese government has been aggressively promoting increased domestic aluminum consumption, and China has also been encouraging domestic aluminum producers to expand their footprints in global markets, which might pose a challenge to other major international aluminum companies -- continuing turmoil in the aluminum industry has already forced Chinalco peer Rio Tinto (NYSE: RIO  ) to absorb a massive $14 billion writedown of its coal and aluminum assets.

Fool contributor Dan Caplinger notes that aluminum producers may bounce back if they can control their production capacity, and that total industry revenue is expected to reach $160 billion by 2017. But Chinalco isn't standing pat on its aluminum business -- the company has plans to purchase a Peruvian copper mine owned by Glencore Xstrata in a deal worth more than $5 billion. Chinalco also made a major $14.05 billion investment in Rio Tinto last year, which was the largest Chinese acquisition ever made. These two purchases mark a pivot toward diversified mining operations, which may help smooth out the erratic quality of aluminum-based earnings.

Putting the pieces together
Today, Aluminum Corp of China has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

An unorthodox resource play
Interested in natural resources? Then you owe it to yourself to discover the most precious resource in the history of the world. It's not gold. Or even oil. But it's more valuable than both of them. Combined. And here's the crazy part: one emerging company already has the market cornered... and stands to make in-the-know investors boatloads of cash. We reveal all in our special 100% FREE report The 21st Century's Most Precious Natural Resource. Just click here for instant access!

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2678866, ~/Articles/ArticleHandler.aspx, 9/26/2016 1:47:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,106.68 -154.77 -0.85%
S&P 500 2,146.49 -18.20 -0.84%
NASD 5,259.37 -46.37 -0.87%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 1:05 PM
ACH $9.07 Down -0.12 -1.31%
Aluminum Corporati… CAPS Rating: **
RIO $32.24 Down -0.17 -0.52%
Rio Tinto CAPS Rating: ***