Fundamentals
The company is fundamentally very strong. Despite being in a capital intensive industry, it is quite liquid. Its current ratio and quick ratio are much higher than the industry peers. Even its interest coverage ratio is less than 1% of the industry average. This illustrates the financial strength of the company. The efficiency with which the company is managing its assets is evident from the high turnover ratios as compared to the industry.
The company’s high return on equity suggests an optimistic long term growth potential. Therefore, the strong balance sheet and the robust cash flows indicate further upside potential.
13F Filers buying the stock
During the quarter ended on March 31, 2013, there were 46 13F filers who held Alliance Resource Partners, L.P. (NASDAQ:ARLP)’s stock. Out of these 46 investors, 19 increased their position in the stock, while 18 held on to their stock holdings. Rest 9 investors reduced their position during the quarter. Overall, this signals that a large number of investors expect the stock to go up, and are therefore either buying or holding it.
Competitors
Peabody Energy Corporation (NYSE:BTU) recently posted a loss of $19.4 million compared to a profit of $178.3 million in the year ago period. This was primarily because of higher non-cash expenses. But, the company has expressed optimism due to an expected increase in coal demand in China, where steel production rose by 9%. This is expected to lead to an increase in coal imports.
Its stock price followed a similar trend to Walter Industries, with more than a 70% decline since March 2011. The company’s trailing P/E ratio is 14.4, which is higher than the industry average of 13.98. Its forward P/E ratio is 11.69, but the EPS growth forecast for the next five years is negative. Therefore, the stock doesn’t seem to be a profitable investment at the moment.
Arch Coal Inc (NYSE:ACI) reported a 20.6% fall in revenue in Q1 2013 as compared to the same quarter last year. Net income also fell by $70 million as compared to a profit of $1.2 million last year. The number of shares that are short are 4.4% of the total outstanding shares. This reflects the pessimism among investors in the short-term. But because of the low cost operations and capital spending reductions, the company is expected to generate strong cash flows and value for the shareholder in future.
Its stock was trading at around $36 in early 2011, but then it plummeted like all its industry peers. It’s currently trading at $5.40. Its P/S and P/B ratios seem undervalued when compared to its peers. With positive earnings forecasts in the next few years and low current valuations, the stock might to do well in the long-term.
Conclusion
Alliance Resource Partners, L.P. (NASDAQ:ARLP) might prove to be a profitable investment because of its strong fundamentals and promising growth potential. It has been posting strong quarterly results despite being in an industry which has been going through a rough time. There is some optimism about the company as most of the 13F filers who have invested in the stock are currently holding it.
Its stock is trading at a trailing P/E ratio of 10.50, which is lower than the industry average of 13.98. The forward P/E ratio is even lower. The trailing P/S and trailing P/CF are also much lower than the industry average. All this indicates that the company is undervalued right now, and may see a correction in the future. Its 6.7% dividend yield would continue to provide regular income to its investors.Therefore, investors might want to stay invested in the stock to get high overall returns.
The article Buy This MLP for Its Dividend Yield and Long-Term Growth originally appeared on Fool.com and is written by Shas Dey.
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