The last month has been a rather surprising one for investors in Origin Energy Ltd (ASX: ORG). That's because, while the company released a slightly disappointing set of results that showed a decline in EPS of 7%, shares in the company have risen by a whopping 10%.
That easily beats the ASX's flat performance over the same time period. However, that doesn't mean that shares in the energy producer are due a fall, and they could prove to be a great investment. Here's why.
Growth potential
Although Origin Energy reported a fall in earnings for last year, the next couple of years look set to be much brighter for the company's bottom line. Indeed, EPS is forecast to increase by 9% in the current year and then by an incredible 59.6% next year. Both of these growth rates are in excess of those of the wider market and show that there is strong growth potential on offer in the near term.
An attractive valuation
On the face of it, shares in the company appear to be considerably overpriced. That's because they trade on a P/E ratio of 23.3, while the ASX has a P/E ratio of 15.8. As a result, many investors may conclude that shares in Origin Energy are due a pullback after their recent gains.
However, when the company's growth potential is taken into account, it's a very different story. Indeed, Origin Energy trades on a price to earnings growth (PEG) ratio of just 0.73. That's a whole lot lower than the ASX's PEG ratio of 1.79 and highlights that, while it may not appear cheap at first glance, Origin Energy offers growth at a reasonable price.
Income potential
As with its valuation, Origin Energy's income appeal is not immediately apparent. That's because its unfranked yield of 3.3% doesn't look all that attractive when the ASX has a yield of 4.5%. However, with such strong earnings growth potential, dividends per share are due to benefit from a major increase.
Indeed, they are expected to stay flat in the current year and then rise by 40% in FY 2016. This means that in two years' time, Origin Energy could be yielding as much as 4.6% (assuming no change to its share price). Clearly, that would put it well within the territory of income-seeking investors.
So, Origin Energy has considerable income appeal, huge growth potential and trades at a reasonable price. However, it's not the only company that could boost your portfolio returns in the coming years.
