- By GF Value
The stock of Algonquin Power & Utilities (NYSE:AQN, 30-year Financials) shows every sign of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $15.89 per share and the market cap of $9.4 billion, Algonquin Power & Utilities stock shows every sign of being modestly overvalued. GF Value for Algonquin Power & Utilities is shown in the chart below.
Because Algonquin Power & Utilities is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 9.20% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Algonquin Power & Utilities has a cash-to-debt ratio of 0.02, which is in the bottom 10% of the companies in the industry of Utilities - Independent Power Producers. GuruFocus ranks the overall financial strength of Algonquin Power & Utilities at 3 out of 10, which indicates that the financial strength of Algonquin Power & Utilities is poor. This is the debt and cash of Algonquin Power & Utilities over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Algonquin Power & Utilities has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $1.37 a share. Its operating margin is 20.48%, which ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers. Overall, the profitability of Algonquin Power & Utilities is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Algonquin Power & Utilities over the past years: