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.
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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.
