AltaGas Ltd. (TSE:ALA), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. The recent jump in the share price has meant that the company is trading around its 52-week high. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today we will analyse the most recent data on AltaGas’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for AltaGas
What Is AltaGas Worth?
AltaGas is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that AltaGas’s ratio of 23.99x is above its peer average of 17.27x, which suggests the stock is trading at a higher price compared to the Gas Utilities industry. But, is there another opportunity to buy low in the future? Given that AltaGas’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from AltaGas?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 72% over the next couple of years, the future seems bright for AltaGas. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? ALA’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe ALA should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ALA for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for ALA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into AltaGas, you'd also look into what risks it is currently facing. For example, we've found that AltaGas has 4 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.
If you are no longer interested in AltaGas, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About TSX:ALA
Good value low.
