Algonquin Power Stock Plummeted 34% in November – Is it a Buy Today?

After a steep fall on a poor earnings release, value investors are taking a closer look at Algonquin Power & Utilities stock.

| More on:
Volatile market, stock volatility

Image source: Getty Images

Algonquin Power & Utilities (TSX:AQN) was one of the worst-performing TSX stocks in November. Falling 34% for the month, it vastly underperformed compared to the TSX Composite Index. In the month of November, Canadian stocks as a whole eked out a 4.3% gain, which compared to Algonquin’s severe loss, looks like a huge rally. In this article, I will explore why Algonquin fell so much in November and whether its stock is a buy today.

Why Algonquin plummeted 34% in November

The main reason why Algonquin stock plummeted 34% in November is because it put out a bad earnings release that failed to live up to analyst expectations. In the third quarter, AQN delivered:

  • $666 million in revenue, up 26%.
  • $102 million in operating cash flows, down 41%.
  • $73.5 million in adjusted net income (i.e., net income of a potential new owner by adjusting for debt interest, compensation, personal, and other expenses), down 25%.
  • -$192.5 million in GAAP net income (i.e., net income going by standard accounting rules), down from a positive figure.

It was a pretty mixed release. There were some good points, like the revenue growth, but on the whole, Algonquin didn’t deliver the results investors were expecting. So, it’s not surprising that it sold off after the release came out.

How it stacks up today

It’s one thing to note that a stock has done poorly in the past, but quite another to say that it will continue to do poorly. It’s quite common for companies to turn around after bad news, maybe Algonquin is one such stock.

We know that high interest rates are part of the reason why Algonquin struggled in the third quarter. As a utility, it borrows a lot of money to keep power generation going, and its interest expense increased, partially due to higher borrowing costs, after the Bank of Canada repeatedly raised interest rates this year. In Q3, AQN’s interest expenses increased by $23 million. That was a big part of why its earnings went down. The company’s earnings will be fairly low for as long as interest rates are high, but on the flip side, if interest rates come down in the future, then AQN’s earnings will probably go up.

Is it a buy?

Having looked at all the factors behind Algonquin’s stock sell-off, it’s time to answer the all-important question:

Is it a buy?

As someone who was intrigued by Algonquin in the past, I can’t deny that the recent earnings release was bad. It was the worst seen from the company in a long time. However, the company’s positive operating cash flows suggest that maybe the large net loss was somewhat deceptive, perhaps mainly attributable to non-cash factors. I’m not rushing out to buy AQN right now, but I’m not discouraging others from doing so either. I wouldn’t fault someone for desiring the stock’s 9.6% dividend yield.

One thing is for certain: the recent sell-off has made AQN much cheaper than it used to be. At today’s prices, Algonquin trades at book value (assets minus liabilities). In other words, when you buy it, you’re paying for exactly the value of its assets, net of debt, with no premium. That suggests a very cheap valuation, so maybe Algonquin is worth a look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Energy Stocks

Solar panels and windmills
Energy Stocks

Buy 849 Shares of This Super Dividend Stock for $3,100/Year in Passive Income

Looking for a super dividend stock to buy now? Here's a discounted top pick that can provide an ample income…

Read more »

Oil pumps against sunset
Energy Stocks

Suncor Stock: A Millionaire Maker?

With a renewed focus on extracting value from its integrated business, we can expect tremendous value creation from Suncor stock.

Read more »

energy industry
Energy Stocks

Is Enerflex Stock a Good Buy Right Now?

Enerflex stock is down 65% from all-time highs and trades at a compelling valuation right now.

Read more »

oil and gas pipeline
Energy Stocks

3 Reasons to Buy TC Energy Stock Like There’s No Tomorrow

TC stock (TSX:TRP) jumped as the company announced strong earnings as well as a dividend increase, but more could be…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Dividend Stocks

Millionaire Makers: 2 Stocks That Could Help Turn $100,000 Into $1 Million

Two TSX stocks with durable dividends can help turn $100,000 into $1 million over an extended period of time.

Read more »

value for money
Energy Stocks

Easing Oil Prices Reduce Cenovus Energy’s Q4 Earnings  

Cenovus Energy’s fourth-quarter earnings show the effect of easing oil prices. The stock is down 17% from its high. Is…

Read more »

energy industry
Energy Stocks

Suncor Stock Q4 Results Out Today: What to Expect

Suncor Energy's fourth quarter results will likely benefit from record production and continued efficiency gains.

Read more »

Oil pipes in an oil field
Energy Stocks

Got $1,000? 2 Canadian Energy Stocks to Buy and Hold Forever

These high-dividend-paying Canadian energy stocks can make your stock portfolio more stable.

Read more »