Shares of energy company Vistra (VST 2.90%) were recently trading around $178 per share. If you're familiar with its performance in recent years -- it has averaged annual gains of 95% over the past three years -- you may be wondering if this is a good time to buy into it. You may be thinking you should take action before it hits $200.
I'd advise you to not focus on any stock price's absolute value, though. It's important to understand that a $10 stock can be wildly overvalued and likely to pull back, while a $500 stock can be undervalued and on its way to $1,000. To get much meaning from a stock's price, you need to relate it to other measures, such as earnings.
NYSE: VST
Key Data Points
When you do so, you'll see that Vistra seems rather overvalued at recent levels. Its recent forward-looking price-to-earnings (P/E) ratio of 18.7, for example, is well above its five-year average of 12.2. And its recent price-to-sales ratio of 3.6 is way above its five-year average of 1.1.
What's going on? Well, know that Vistra is the largest power producer and seller in the U.S., serving communities from Maine to California with around 44 gigawatts of nuclear, coal, natural gas, solar, and energy storage assets. It's more attractive to many investors because as a non-regulated utility company, it can sell power to both retail and wholesale customers at market rates.
Here's the kicker: Many investors are especially bullish on the energy sector these days, because of the rapid proliferation of data centers for artificial intelligence (AI) processing -- which require a lot of energy. And when demand for power is high, Vistra can set higher prices.
Still, I myself would be wary of investing now, when the stock seems overvalued. You might dig deeper, though, and draw your own conclusions. And if you're wary, too, but eager to invest in it, you might just buy a small position in it, and perhaps add more shares over time.
