The Motley Fool

Is the APA Group share price overvalued?

The APA Group (ASX: APA) has had a cracking year so far – with APA shares running from $8.53 in January to the $10.71 price we see today (a YTD gain of more than 25%). But… on APA’s current share price, the stock is trading at over 46 times earnings, which is well above the market average of around 18. So are APA shares overvalued at current prices? Or is the market placing an appropriate premium on this stock? Let’s take a look at APA and see what’s under the hood.

Who is APA?

APA Group is a company that owns and operates energy infrastructure – mainly natural gas pipelines and electricity generation assets. APA owns a 7,600km East Coast gas distribution grid as well as pipelines in Central and Western Australia, forming the backbone of Australian gas infrastructure. The company also participates in gas compression, processing and storage as well as operating several gas-fired power plants – making APA a highly vertically integrated business.

APA also has a growing presence in renewable power generation, owning stakes in the Emu Downs Wind Farm (north of Perth, WA) and North Brown Hill Wind Farm (north of Adelaide, SA) in conjunction with AGL Energy Limited (ASX: AGL).

What’s to like about APA?

So as we can see, APA is a highly defensive business – meaning that it is resistant to any economic downturns or crashes. We all need gas to cook and electricity to live after all. APA has some pleasing numbers behind it to boot. The company (in its 1H19 results) reported revenue growth of 4.1%, earnings growth of 4.3% and profit growth of 23.1% (all numbers are year-over-year).

APA also boasts a pretty healthy history of dividend growth. Since 2000, the company has raised its dividend in all but two years – making APA a nice dividend growth stock to date. On current prices, APA has a trailing yield of 3.65%, although you can’t rely on APA dividends to typically include franking credits.

Is APA a buy today?

APA is clearly a quality company with a fantastic position in the Australian energy market, which should ensure dominance for the foreseeable future. Saying this, the shares are looking a little pricey from my personal perspective. This isn’t uncommon in our current market, with investors presently placing a premium on stable infrastructure plays with solid dividends like APA. Although I wouldn’t quite call APA overvalued, I still would be looking for a bigger discount to what the market is offering today were to open a position in APA.

I think these shares here show a bit more promise!

Our Top 3 Blue Chip Dividend Shares for 2019 – NOW AVAILABLE!

You’re invited! For a limited time, The Motley Fool Australia is giving away an urgent new investment report detailing our 3 TOP BLUE CHIP SHARES to own in 2019.

So if you like trustworthy, stable, high-performing companies that pay fat fully franked dividends – we’ve got you covered!

Stock #1 is a beloved old Australian company turning its attention to high-margin businesses... and rapidly returning cash to shareholders with its hefty dividend...

While Stock #2 is an online powerhouse that’s rapidly gaining market share all around the globe... poised for years (or even decades) of tremendous growth...

Even better, Stock #3 offers a whopping 6.5% grossed-up dividend! Which beats the rates on term deposits right out of the water – and offers the potential for capital gains, too.

You can discover all three shares inside our new report right now. To scoop up your FREE copy, simply click the link below right now. But you will want to hurry – this free report is available for a LIMITED TIME ONLY!

SimplyCLICK HERE FOR YOUR FREE REPORT!

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here’s the best part: we think there’s one ASX stock that’s uniquely positioned to profit immensely from this explosive new industry… taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click below to learn more on how you can profit from the coming cannabis boom.

Click here to find out more