AltaGas Ltd. (TSE:ALA), is not the largest company out there, but it saw a decent share price growth in the teens level on the TSX over the last few months. 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's The Opportunity In AltaGas?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that AltaGas’s ratio of 12.93x is trading slightly below its industry peers’ ratio of 14.54x, which means if you buy AltaGas today, you’d be paying a reasonable 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 does the future of AltaGas look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 a double-digit 14% over the next couple of years, the outlook is positive 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 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 confidence to invest in the company should the price drop below the industry PE ratio?