Up 262%! This lesser-known energy company is putting other S&P 500 stocks to shame

Our writer delves into the rationale behind the parabolic growth of this under-the-radar S&P 500 energy company. The reason isn’t that surprising.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A graph made of neon tubes in a room

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 hit historic highs this month, closing above 6,000 points for the past two weeks running. Up 27% this year, its performance has dwarfed the FTSE 100‘s lacklustre 6.5% growth.

Major US tech stocks such as Broadcom and Tesla have been leading the charge in the past five days, up 40% and 20% respectively.

But looking at year-to-date performance, one under-the-radar company sticks out. Slotted between the usual suspects of Palantir and Nvidia is Vistra (NYSE: VST), the second-best-performing S&P 500 stock this year.

Should you invest £1,000 in Phoenix Group Holdings Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Phoenix Group Holdings Plc made the list?

See the 6 stocks

Up 262% since 1 January, it’s streaks ahead of Nvidia’s 163% gain but someway behind Palantir’s mind-boggling 333% gain!

The Texas-based retail electricity company’s probably a big deal in the US. But here in the UK, our news is dominated by headline-grabbing tech giants like Amazon and Apple.

So I decided to do some digging and find out why the stock’s doing so well.

Created with Highcharts 11.4.3Vistra PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It’s AI again!

Unsurprisingly, Vistra’s performance is intrinsically linked to artificial intelligence (AI). The rapid increase in data centre development over the past year has led to a skyrocketing demand for electricity.

Datacentres house the huge number of servers, GPUs and storage devices that are critical to running AI technologies. They’re essentially massive digital libraries where the internet resides.

With the demand for electricity forecast to keep growing, hedge funds across the US have been pouring cash into energy suppliers. 

Vistra operates in the deregulated energy markets of Texas and the Pennsylvania-New Jersey-Maryland Interconnection (PJM). This, combined with its capacity to provide dispatchable power, makes it a preferred choice for US data centres.

Latest results

In its third-quarter results released on 7 November, earnings per share (EPS) and revenue exceeded analyst expectations. Revenue climbed 54% to $6.29bn compared to Q3 2023, while EPS surged 320%, from $1.27 to $5.25.

The results were well received, with the stock rallying 15%. Guidance for 2025 was also raised, with adjusted EBITDA expected to range $5.5bn-$6.1bn and cash flow between $3bn-$3.6bn.

Looking ahead, revenue’s forecast to grow at an average rate of 9.2% a year.

Balance sheet

Vistra’s balance sheet has some worrisome figures, particularly $15.52bn in debt. This is considerably higher than its $8.65bn in equity. Operating income covers interest payments four-fold but it’s still a lot of debt to hold.

For now, it looks manageable but a debt-to-equity ratio below 100% would be more reassuring.

Value-wise, the price looks a bit high, with a price-to-earnings (P/E) ratio of 25.7. The industry average is closer to 15.

That’s not particularly surprising, considering the recent growth. It could suppress growth but with electricity demand increasing, I doubt it’ll be a big issue.

So what’s the catch?

Vistra’s performance is heavily reliant on the AI industry maintaining stability. It’s at risk from unforeseen regulatory hurdles, not to mention energy price fluctuations. 

And with the bar now set high, shareholders will expect a lot from the year’s final results. A fall below expectations could spook investors, sending the share price tumbling.

All things considered, I think it’s a big enough company to weather short-term issues. If I had spare cash, I’d buy the stock to diversify my tech-laden portfolio.

I think it’s well worth considering, especially for investors looking for AI exposure beyond the obvious options.

Should you invest £1,000 in Phoenix Group Holdings Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Phoenix Group Holdings Plc made the list?

See the 6 stocks

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Nvidia, and Tesla. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »