The stock of AltaGas (OTCPK:ATGFF, 30-year Financials) is believed to be fairly valued, 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 $20.0627 per share and the market cap of $5.6 billion, AltaGas stock is estimated to be fairly valued. GF Value for AltaGas is shown in the chart below.
Because AltaGas is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 10.2% over the past three years and is estimated to grow 11.07% annually over the next three to five years.
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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. AltaGas has a cash-to-debt ratio of 0.01, which is in the bottom 10% of the companies in the industry of Utilities - Regulated. GuruFocus ranks the overall financial strength of AltaGas at 3 out of 10, which indicates that the financial strength of AltaGas is poor. This is the debt and cash of AltaGas 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. AltaGas has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5.3 billion and earnings of $1.026 a share. Its operating margin is 10.04%, which ranks in the middle range of the companies in the industry of Utilities - Regulated. Overall, the profitability of AltaGas is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of AltaGas over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of AltaGas is 10.2%, which ranks better than 77% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth is 17.8%, which ranks better than 79% of the companies in the industry of Utilities - Regulated.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, AltaGas's ROIC is 2.86 while its WACC came in at 6.92. The historical ROIC vs WACC comparison of AltaGas is shown below:
To conclude, the stock of AltaGas (OTCPK:ATGFF, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 79% of the companies in the industry of Utilities - Regulated. To learn more about AltaGas stock, you can check out its 30-year Financials here.
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