- Peabody Energy (BTU) might look like it has gotten expensive, but the data indicates that it’s not actually pricey at all.
- Moreover, geopolitical tensions could keep coal prices high, which in turn might buoy the Peabody Energy share price.
- Investors should consider adding shares of Peabody Energy as a pure play on the bull market in coal.
Peabody Energy (NYSE:BTU) is an international coal mining business with a history dating all the way back to 1883. BTU stock appears to be in the middle of an impressive bull run, and has the potential to move significantly higher.
It’s understandable if geopolitical tensions are keeping some folks out of the stock market. The headlines can be scary, and stock market volatility may be hard to navigate.
Yet, even during times of turbulence, there are pockets of value and opportunity to be discovered. Peabody Energy represents a pure, direct way to get exposure to a widely used commodity. So, while the media might obsess over the oil price, you can consider a coal goal with Peabody Energy.
What’s Happening With BTU Stock?
At first glance, value-focused investors may be tempted to assume that BTU stock is overbought. Granted, the stock did recently run from $11 to $25.
However, let’s not jump to conclusions. As the old Benjamin Graham/Warren Buffett saying goes, “price is what you pay but value is what you actually get.”
That’s a rough interpretation of the old quote, but the idea remains relevant. Paying more for a stock is fine if you’re paying for a high-quality business. The price can, in other words, still be quite reasonable even if it’s higher than it was a month ago.
Even after the swift share-price rally, Peabody Energy has a trailing 12-month price-to-earnings ratio of 7.99x. That’s very reasonable, and indicates that BTU stock is not overpriced when we consider Peabody Energy’s earnings.
Need more data to convince you? No problem. Maybe you prefer to use the trailing 12-month price-to-sales ratio as a valuation metric. For Peabody Energy, this number is currently 0.87x. It’s been said that “a price-to-sales below 1 is a good bargain,” so BTU stock is in “good bargain” territory.
Filling the Hole With Coal
Even beyond the reasonable valuation, there’s a timely reason to consider buying shares of Peabody Energy now.
As InvestorPlace contributor Samuel O’Brient recently reported, the European Union has proposed banning all coal imported from Russia as part of an effort to curb the E.U.’s dependence on Russian energy.
Now, let’s not get the wrong idea here. Peabody Energy isn’t “just a coal miner” as the company has interest in clean energy. In fact, as Bloomberg reports, Peabody Energy is embarking on a joint venture with Riverstone Credit Partners and Summit Partners Credit Advisors to “develop utility-scale solar projects on land around retired coal mines.”
Yet, Peabody Energy remains a powerful player in the global coal market. If coal miners will be called upon to fill the coal hole potentially opened up by Russia’s non-participation, Peabody Energy should be ready and willing to heed that call.
Truly, BTU stock could be a secret weapon in your portfolio in 2022. Many traders are following the headlines and focusing their attention on high petroleum prices. Coal should remain relevant for a while too, though, as the global clean-energy transition won’t happen overnight.
What You Can Do Now
Peabody Energy is active in the clean energy movement. However, the company remains an important coal mining business, and geopolitical tensions could spark a sustained coal-market supply deficit.
As O’Brient pointed out, “If the E.U. does end up banning Russian coal exports, it will need to find new providers.” Peabody Energy is a coal miner with international business interests. Perhaps the company can step up to the plate and deliver this in-demand energy source.
Besides, Peabody Energy’s valuation is actually quite reasonable when we examine the relevant data. Therefore, a long position in BTU stock is entirely justifiable.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.