ALGM, Allegro MicroSystems

Will it survive?

• Can it pay its interest? 0.8×
  Does not cover its interest
  Operating income $18M ÷ interest expense $22M
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? $119M · 6.4× operating profit
  Heavy net debt
  Cash $169M − debt $287M
  What this means

  Netting $169M of cash and short-term investments against $287M of debt leaves $119M owed, about 6.4× a year's operating profit (15.5× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 143d
  Long (60+ days)
  DSO 38 + DIO 139 − DPO 34 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 13%
  Solid through the cycle
  5-yr median, range -1%–28%; the latest year is left out — large non-operating charges put its operating line well above pretax profit
  Industry peers: median 10%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 5 years, so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 14%
  Solid through the cycle
  7-yr median margin, range 3%–15%; latest $125M = operating cash $163M − maintenance capex $38M
  Industry peers: median 14%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 14% of revenue this year, a 14% median across 7 years. Treating stock comp as the real expense it is (less $48M of SBC) leaves $77M.

• Are earnings backed by cash? $163M
  Loss, but cash-generative
  Net income ($15M) · cash from operations $163M
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? 0%
  Reinvests most of it
  Dividends + buybacks $0 ÷ Owner Earnings $125M — this fiscal year
  What this means

  Of $125M Owner Earnings, $0 (0%) went back to shareholders, $0 dividends, $0 buybacks. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does. This year's proportion is 0%; across the record (2020–2026) it is 201%, the capital-allocation section below.

• Investing or harvesting? 0.56×
  Harvesting
  Capex $38M ÷ depreciation $68M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• Is the buyback buying ownership, or mopping up? 5.4%
  The count is edging down
  Stock compensation $48M (fiscal 2026), 5.4% of revenue · no repurchases · diluted shares -4.5% since 2023
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 2 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $890M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Pass
  Current ratio ≥ 2× · 3.45×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $287M vs $358M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (7-yr record) · 2 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 1 of 7 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Miss
  Earnings +33% over the record · −63%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $0.12/share (latest year $-0.08), the averaged base the calculator's gate runs on, and book value is $5.12/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2020–2026

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 5 of 7
  What this means

  Lost money in 2 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 2 of 7 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 9% → 6% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 9% early to 6% lately, median 8% — competition or costs are biting in.

• Reinvestment, incremental ROIC −0%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth +4%/yr
  What this means

  Owner earnings grew about 4% a year over the record.

• Worst year 2025 · −2.7% op. margin
  What this means

  Operations went underwater in 2025, understand why before trusting the good years.

• Dividend record paid
  What this means

  Paid a dividend in 1 of the years on record.

• How management talks about it Owner’s terms
  What this means

  The record and the register agree: capital is compounding and the filing reasons in an owner’s terms — per-share value, return on capital, the long term — not a promoter’s.