Up 288% in a year! Is the fastest-growing S&P 500 stock still a bargain?

This S&P 500 stock’s growing faster than Nvidia, and despite its explosive performance, the shares still look cheap! Is this a screaming buy?

| More on:
Arrow symbol glowing amid black arrow symbols on black background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The S&P 500‘s filled with hundreds of high-growth enterprises. And while Nvidia seems to be stealing the headlines with its AI-empowering GPUs, it’s not actually the fastest growing stock in the US index. That title actually belongs to a little-known business called Vistra Corp (NYSE:VST).

The energy utility business has been on fire over the last 12 months, climbing by just shy of 290% versus Nvidia’s 240%. But unlike Nvidia, Vistra’s still trading at a cheap-looking valuation. In fact, even after almost quadrupling, the forward price-to-earnings (P/E) ratio sits at just 17.4.

Compared to the S&P 500’s current forward P/E of 22.7, that suggests Vistra shares still have some room to grow. So is this still a buying opportunity to consider right now? Let’s take a closer look.

Supplying critical utilities

Vistra Corp isn’t a household name here in the UK. But it’s a similar story across the pond. Between its 2016 IPO and 2023, the share price only climbed a mediocre 45%. That’s an annualised return of around 6.3%, vastly underperforming the S&P 500 over the same period.

However, earlier this year, Vistra caught a big break with the acquisition of Energy Harbor. While it cost $3.4bn, the deal gave Vistra 4,000 megawatts of nuclear energy capacity, enough to power roughly one million homes. And at the same time, the firm also became the second-largest energy storage enterprise in the country.

Demand for clean electricity’s skyrocketing thanks to large language AI models as well as electric vehicles. As a result, interest in nuclear energy solutions is rising fast both in the US and here in the UK. In other words, Vistra looks a potentially terrific way to invest in America’s energy transition away from fossil fuels.

How do the financials look?

Having the right infrastructure assets is obviously crucial, as are revenue and earnings. So how do Vistra’s fundamentals look?

On an underlying earnings basis, Vistra’s performance actually looks rather promising. Average revenue growth’s been fairly modest, given the group’s lack of pricing power. But from an adjusted EBITDA perspective, the company appears to be on track to deliver $6bn in profit by 2026 versus the $4.55bn-$5.1bn expected by the end of 2024.

Of course, the fundamentals aren’t perfect. Owning and operating energy infrastructure isn’t cheap and the balance sheet‘s been steadily accumulating debt over the last five years, with $16.8bn of outstanding loans reported in June. Higher interest rates with higher leverage aren’t a great combination, and the firm’s interest expense bill’s on the rise.

The good news is that management still has around $1.6bn in cash in the bank to tackle rising debt costs. But investors should keep an eye on cash flows to make sure debt isn’t getting out of hand while the group focuses on digesting its latest acquisition.

The bottom line

Vistra’s long-term potential looks promising, in my opinion. And its current valuation definitely looks attractive. However, since my portfolio already has sufficient exposure to the energy transition market, it’s not a business I’m rushing to buy today.

However, for investors looking to capitalise on this trend, this S&P 500 stock may be worth a closer look.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »