How attractive is Agrium?
So far, the stock has performed impressively rewarding its shareholders with juicy returns. Yet, once again, CF Industries is leading the pack with a five-year rally greater than 50%:
So, why not own CF Industries instead of Agrium? Or better, why not own both? Let’s take a look at fundamentals.
P/E (ttm) | Forward P/E | P/S (ttm) | 5-year expected PEG | Debt-to-equity ratio | Dividend yield% | |
Agrium | 10.55 | 10.19 | 0.92 | 1.43 | 0.21 | 1.91 |
CF Industries | 6.90 | 8.31 | 2.08 | 0.65 | 0.26 | 0.82 |
Potash | 16.29 | 11.49 | 4.56 | 2.68 | 0.41 | 2.84 |
Mosaic | 13.05 | 11.36 | 2.43 | N/A | 0.08 | 1.74 |
Source: Yahoo! Finance and Ycharts.
Potash gets extra points for having the highest dividend yield in the peer group, but this advantage is offset largely because of its comparably unfavorable valuation metrics and high debt-to-equity ratio. Mosaic is ahead of the others in terms of financial discipline. However, its P/E ratio looks rather pricey, suggesting that now might not be the right time to start a position.
Agrium and CF Industries both have attractive valuations that could point to a possible value opportunity. Especially, CF Industries’ expected PEG ratio of below the norm of one is clearly indicating that the stock is undervalued.
The accuracy of this ratio is questionable, though as it relies on future earnings growth estimates, which may deviate from actual future earnings growth. Generally, the price-to-sales ratio is a precise indicator of a price bargain since sales are hard to manipulate through accounting shenanigans. At the moment, Agrium is the only one from the bunch that is trading at a discount to sales.
Final thoughts
To sum up, Agrium is definitely an intriguing investment that could prove to be highly lucrative for potential buyers. Based on the median target price of $120, it has at least 20% upside potential. Nonetheless, there is always a cautionary tale to be told when investing is involved. In this case, it is the industry’s cyclical parameters.
All of the above mentioned companies are admittedly strong players, each for a different reason. But they operate in a business that is subject to commodity prices‘ volatility and global demand trends. Thus, investors should keep an eye on market dynamics, as well as macroeconomic developments. From a demand perspective, Agrium expects 2013 to be a year of increased acreage plantings, revealing a positive outlook for the industry.
The article Is Agrium’s Stock Worth Owning? originally appeared on Fool.com and is written by Fani Kelesidou.
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