Are you interested in buying green energy stocks?
That may be a sensible idea, but you’ll want to be careful about what you invest in. Because green energy is being pushed so heavily, the space has attracted a lot of unscrupulous companies that see ‘green’ branding as a good way to pump their stock prices. In many cases, the ‘companies’ in question do no or very little business.
If you’re going to be holding green energy stocks, then you need to know which ones are legitimate. In this article, I will share one green energy stock that is doing meaningful, real-world work. While that doesn’t make its stock an automatic buy, it does give it a fighting chance compared to some of the ‘make-believe’ out there in the world of green energy.
Brookfield Renewable Partners
Brookfield Renewable Partners (TSX:BEP.UN) is a green energy company that invests in hydro, wind, solar, and more. It even has a presence in nuclear energy, through its partially-owned Westinghouse subsidiary, which develops nuclear power equipment.
BEP.UN is a diversified holding company with many different operations. However, the most common business activity of its subsidiaries is utility services, which is to say supplying power directly to end users. The company owns a variety of wind, solar, and hydro utility companies that supply power in a number of different countries.
High growth
One positive attribute that Brookfield Renewable Partners has is a significant amount of historic growth. BEP.UN did 17% revenue growth in the trailing 12-month period. It compounded its revenue at 13%, 8%, and 13% in the trailing 3-, 5- and 10-year periods, respectively.
Unfortunately, this strong revenue performance was not equalled by the earnings performance: the company’s operating income is up only slightly over the last 3 and 10 years, and actually down over the last 5. But the strong revenue performance does point to the possibility of stronger earnings performance going forward.
A sensible valuation
Another thing Brookfield Renewable has going for it today is a sensible valuation – at least going by some metrics. At today’s price, the stock trades at:
- 6.9 times cash flow.
- 1.4 times book.
- 1.6 times sales.
- 18 times funds from operations (FFO).
Unfortunately, the company’s earnings per share were negative in the trailing 12-month period, so a meaningful PE ratio can’t be computed. However, FFO is often used in place of earnings for companies like BEP.UN, and the 18 price/FFO ratio appears fairly sensible.
A lucrative deal
The single most exciting thing happening with Brookfield Renewable Partners right now is its Microsoft (NASDAQ:MSFT) deal. Last year, the company signed a deal to provide Microsoft with 10.5 gigawatts of power over 15 years. By some estimates, this deal could add up to $1 billion per year in revenue to Brookfield Renewable Partners. The party is just getting started here, so Brookfield Renewable’s relationship with Microsoft will be an exciting story to watch in the coming years.
Foolish takeaway
When it comes to green energy, it’s hard to think of a heavier hitter than Brookfield Renewable Partners. Doing deals with some of the world’s most important companies, it’s a key player in its space. That alone doesn’t make the stock a buy. It does, however, make it a stock worth studying.
