Should I Buy Aggreko?

LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. Should I power into Aggreko (LSE: AGK  ) ?

Olympic champion
Power-systems specialist Aggreko is hot stuff right now, after posting final results for 2012 showing a 12% rise in profits to £367 million and 14% rise in underlying revenues to £1.58 billion.

Management was full of praise for, um, itself, hailing the group's "flawless execution of the London Olympics", which is more than G4S can say. I don't own shares in this company, which rents out generators and temperature control equipment, but wish I did. Should I buy Aggreko now?

Well, plenty of other investors have been buying. After the latest results were published, the stock experienced a power surge, rising around 15%. This partly reflected the excellent figures above, and was partly relief after a worrying trading update in December, which suggested the outlook for 2013 was "particularly uncertain".

Some £100 million revenue was under threat, as U.S. troops exited Afghanistan and post-earthquake demand for emergency generators in Japan subsided. The admission instantly knocked 26% off the share price, which plunged from £22.50 to £16.60.

Power to the people
Chief executive Rupert Soames was more reassuring this month, pointing to a "very strong start" to 2013, with almost 20% more power on rent than a year ago, partly helped by an acquisition.

Aggreko works across 100 countries and growth was broadly spread, with the inevitable exception of Europe. This year could still be a bit of a struggle, but management predicts double-digit rates of growth in revenues over the next five years, with margins and returns on capital in excess of 20%. Power on!

Even the doubters have been won over, including broker Investec, which has just upgraded Aggreko to a buy, praising its confident business model and clear financial guidance.

Cooling off
Aggreko currently trades at £19.88, so it hasn't recovered all of its December losses just yet (it is still down 11%). Yet I find myself hesitating to back this stock.

Group debt rose last year to £593 million, up from £365 million in 2011.

And there are no Olympics or major football tournament this year to produce a short-term surge in profits. So earnings-per-share growth is set to be negative during 2013, at minus 6%, although 2014 looks better at 9%. 

Income seekers will be disappointed by the 1.2% yield. Value hunters will be deterred by the expensive valuation of 20 times earnings. This is definitely a power player, with 18% profit margins, and its modest PEG of 0.6 suggests there is scope for growth. But to me, the share just isn't cheap right now.

Anyway, who wants a 1.2% yield when you can enjoy nearly 6%? That's what's on offer from this Motley Fool favorite stock pick.

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