uploads///Agriums Stock Price versus PE

Is Agrium’s Valuation Multiple Looking Expensive?


Dec. 16 2016, Updated 2:05 p.m. ET


Earlier, we saw how Agrium’s (AGU) fundamentals will likely play out over the next four quarters ending in 3Q17. The company’s earnings per share (or EPS) are expected to fall ~6% in the period. However, the stock recently rallied, outperforming even the S&P 500 Index (SPY).

At $103.2, does Agrium look expensive? To answer this, we’ll look to its forward valuation multiple as an indicator. In this article, we’ll compare Agrium’s forward valuation multiple to its historic valuation multiples. In the next article, we’ll compare its multiple with those of its peers (MXI).

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Forward PE

In the chart above, we’ve plotted the movements of Agrium’s forward PE (price-to-earnings) multiple, a popular and well-recognized valuation multiple, against the movements of the company’s stock price. Forward PE, calculated by taking a stock’s market price over its next four quarters’ worth of EPS estimates, has proved to be a useful indicator for investing in Agrium over the past two years.

More recently, around August 2016, Agrium’s PE multiple reached its peak of 18x, indicating that the company’s valuation had become expensive, and a pullback was expected. In the following months, Agrium’s PE pulled back, but it has continued to rise since the news of the company’s merger with PotashCorp (POT).

Currently, Agrium is trading at a forward PE of 20x compared to its median of 13x over the past two years. This surge in PE doesn’t necessarily mean that Agrium is expensive, given that investors are factoring in its merger with PotashCorp.

In the next article, we’ll compare Agrium’s multiple with those of its peers The Mosaic Company (MOS), K+S, CF Industries (CF), and PotashCorp to see if Agrium’s current PE multiple is the new normal.


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