However, I still think the ASX energy share is in the buy zone at a certain price. Here are 3 reasons I like the AGL share price right now.
3 reasons I like the AGL share price
1. Non-cyclical earnings
One big reason I like ASX energy shares like AGL is for their non-cyclical earnings. Of course, times are tough right now but I see that as more of a function of pandemic restrictions than the business cycle.
Demand for energy is generally quite stable as households and businesses need to keep the lights on. It may be hard to see right now, but I like the AGL share price due to the non-cyclical earnings on offer.
2. Market position
AGL is one of the three big energy generators and retailers or ‘gentailers’ in Australia. The other two rivals are EnergyAustralia and Origin Energy Ltd (ASX: ORG).
These ‘big three’ hold immense market share and have historically controlled more than 60% of electricity generation capacity in New South Wales, South Australia and Victoria.
That means the AGL share price is underpinned by a very strong market position. Regulation is always a threat given the oligopoly-like market dynamics right now.
However, I think AGL will continue to be an industry leader. That puts it in a strong position to lead the charge on any changes like a push towards wind or solar.
3. Relative value
While on the subject of competitors, I like AGL based on its relative value.
The AGL share price currently trades at a price to earnings (P/E) ratio of 8.7x. That’s been pushed lower during the recent share price falls in 2020.
However, you’d expect to see the same across the board. That’s not entirely the case despite the Origin Energy share price falling 46.9% in 2020.
The Origin share price trades at a P/E ratio of 95.5x which could indicate that AGL is a good buy compared to its peers.
The AGL share price has slumped lower and underperformed the S&P/ASX 200 Index (ASX: XJO) this year.
However, the ASX energy share could be moving into the buy zone in late 2020 after hitting a new 52-week low in yesterday’s trade.
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Motley Fool contributor Ken Hall 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.
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