AGL Energy Limited (ASX: AGL) stock finished the session yesterday in the red, down 0.55% to $8.96 per share.
The benchmark S&P/ASX 200 Index (ASX: XJO) was also lower, down 0.63% at the market close.
AGL stock has lost almost 60% of its value over the past five years, but things may be turning around in 2023.
Is it time to buy? Let's look into it.
AGL stock down 60% over five years but rising in 2023
Any ordinary ASX investor looking at AGL's five-year share price chart would be forgiven for thinking this is a stock with little to no spark.
Or one that could electrocute your investment dreams.
Take a look at the fluctuations between 2018 and just before COVID-19 hit in early 2020. Not inspiring.
And then came the COVID-19 crash, and AGL simply never recovered the way other ASX 200 shares did.
In February 2020, AGL shares were trading above $21. Then someone turned the lights out — for almost two years.
AGL stock continued on a general downward trajectory between February 2020 to November 2021. That's when AGL stock hit the early $5 mark.
It has experienced a recovery of sorts since then, but 2022 was a very tumultuous year for AGL stock.
Arguably, the biggest controversy was the shareholder revolt led by Mike Cannon-Brookes over the company's proposal to divide AGL into two parts.
Management essentially wanted to create a clean energy AGL and a dirty energy AGL that would operate its power stations and other high-carbon assets.
It goes without saying, the global transition to green energy is a massive challenge for most companies in the energy space.
But maybe things are turning around for AGL stock, given its 11% price rise in the year to date?
Is AGL now an ASX 200 value buy?
Firstly, the definition of an ASX 200 'value share'.
A value share is one that is trading below its intrinsic worth. It's also usually a well-established blue chip stock that pays regular dividends.
After a 60% fall over five years, it's worth considering whether AGL stock offers value right now.
How do we determine value?
Let's use two popular measures.
P/E ratio
The price-to-earnings (P/E) ratio measures the current share price against earnings per share (EPS) to determine a company's value.
According to data on our ticker page, AGL stock is trading on a P/E ratio of 5.29.
A P/E below 15 is generally considered cheap.
But given the hullabaloo around the AGL business of late, there's a reason why this stock is cheap.
That's always the catch with value shares. You've got to find out why they're cheap, and whether that reason justifies dismissing them as investment options.
P/B ratio
The price-to-book (P/B) ratio compares a company's share price to its book value per share.
Book value is calculated by subtracting the total value of a company's liabilities from the total value of its assets.
According to Westpac Trading data, AGL stock has a P/B ratio of 0.93.
Generally speaking, a ratio less than one means the ASX share is trading at less than its book value, hence it may be undervalued.
What about AGL dividends?
My Fool colleague Tristan wrote extensively about AGL dividends recently.
CommSec estimates suggest the ASX 200 utilities stock will pay an annual dividend of 27 cents in FY23, 56 cents in FY24, and 70 cents in FY25.
Based on yesterday's closing AGL share price, those numbers equate to dividend yields of 3% in FY23, 6.3% in FY24, and 7.8% in FY25. That's an appealing yield.
AGL dividends are unfranked.
Should you buy AGL stock?
The cost of decarbonisation and the transition to green energy are risks for AGL stock.
But they're risks for a lot of stocks, including ASX mining shares and ASX energy shares.
Right now, AGL stock has the backing of top broker UBS. It has just raised its 12-month share price target on AGL stock by 19% to $9.60.
And it's interesting to note that a lot of insiders are buying AGL stock for their personal portfolios.
After all, they're buying with their own money, so that always inspires a bit of confidence among ordinary ASX investors.
