Fertilizer stocks such as Agrium (NYSE: AGU) have been on a high, reporting hot numbers in their latest quarters. While a good quarterly announcement might seem like a great reason to get excited about a stock, it’s important to take a deeper look before investing.

Agrium’s robust second quarter has encouraged me to take a better look at the company, and help Fools in judging whether the stock deserves a watchful eye now.

Operational performance
Agrium’s second-quarter bottom line surged 39% from the year-ago quarter on the back of higher revenues. Higher nutrient prices as well as volumes have boosted sales growth for the company. And this is no fluke -- revenue has grown at a whopping compounded average of 27% over the past five years.

The Canada-based company has also been maintaining good operating earnings levels, having a high five-year compounded operating income growth of 31.6% and an amazing one-year rate of 109.8%.

Growth and stability
Agrium has been aggressively expanding through acquisitions. Last year, it acquired several farm centers and retail stores, including some from DuPont (NYSE: DD). Another major move was the acquisition of Australian agribusiness firm AWB, which helped Agrium gain a stronger foothold in the region. This year, too, Agrium has made additions to its portfolio and announced further acquisition plans.

Acquisitions are primarily where Agrium has been spending. As a result, its total debt-to equity ratio has risen to 43% from 36% a year ago. But with a robust earnings growth and comfortable interest coverage ratio of 12.3 times, the company can be given a thumbs-up for its expansionary moves.

Value insights
Let’s take a look at how Agrium’s valuation stacks up next to its peers’:

Company

Trailing P/E

Forward P/E

TEV/EBITDA

Agrium 14.27 10.76 8.21
Mosiac (NYSE: MOS) 19.29 12.09 8.99
CF Industries (NYSE: CF) 11.63 8.81 5.68
Potash Corp (NYSE: POT) 24.87 14.27 14.26

Source: Capital IQ, a division of Standard & Poor's.

Agrium looks fairly cheap on an absolute basis, and when compared with its peers, on a trailing as well as forward P/E basis. In fact, given the strong operational performance and the aggressive growth moves the company has been taking up, it seems that its future potential has not been factored in much.

Some value investors like to go for companies that generate higher operational earnings (measured by EBITDA) in relation to enterprise value. Here too, Agrium looks cheaper than its peers.

The Foolish bottom line
Strong performance and a fairly cheap valuation make Agrium a stock worth considering. Moreover, Agrium has recently entered into an agreement to export potash (a key ingredient) at its prevailing high prices to India. For investors willing to get a hand on the agricultural boom, Agrium looks like a fair play to bet on.

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