When Should You Buy AltaGas Ltd. (TSE:ALA)?

By
Simply Wall St
Published
January 31, 2021
TSX:ALA
Source: Shutterstock

AltaGas Ltd. (TSE:ALA), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at AltaGas’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for AltaGas

What is AltaGas worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 15.9x is currently trading slightly below its industry peers’ ratio of 17.23x, which means if you buy AltaGas today, you’d be paying a decent price for it. And if you believe AltaGas should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since AltaGas’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will AltaGas generate?

earnings-and-revenue-growth
TSX:ALA Earnings and Revenue Growth February 1st 2021

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. AltaGas' earnings over the next few years are expected to increase by 37%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

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 around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ALA? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on ALA, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ALA, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, AltaGas has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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