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Energy companies are seeing immense momentum and profits right now.

I’m seeing phenomenal numbers all across the sector… and this week’s Stock of the Week is no different.

This diversified energy producer just reported some fantastic numbers…

Revenues were up 70%. Net income rose 266%. EBITDA increased 100%.

It’s largely thanks to the resurgence of coal.

That’s right, coal.

Given the cost-of-living crisis and the high price of energy, we’re reverting to coal. And this company is in position to produce what we need.

For those reasons and more… it’s my pick for this week’s Stock of the Week.

Get all the details – including the ticker – by checking out the latest episode.

Click on the image below to watch it.

Transcript

Every week, I scour the markets to find best and most interesting stocks to bring to you.

It gives you a bit of an insight into how my GVI Investor research service works… the kind of data that goes into it… and the kind of analysis I use.

The company I have for you this week is Alliance Resource Partners (ARLP). It’s a diversified energy producer. It’s also a marketer of steam coal to major U.S. facilities and industrial users.

This natural resources company generates operating income from the production and marketing of coal. Given the cost-of-living crisis and the high price of energy, we’re reverting to coal.

Alliance also makes royalty income from coal, oil and gas, and mineral interests located in strategic regions across the United States. As the coal industry’s first publicly traded master limited partnership, it’s also the second-largest coal producer in the eastern U.S.

It just reported record revenues, unsurprisingly… going up 70%. Net income rose 266%. EBITDA – which is earnings before interest, taxes, depreciation and amortization – increased 100%.

Those are phenomenal numbers. And that’s what we’re seeing with many energy companies in the market. Energy companies are seeing immense momentum and profits right now.

Now let’s look at some of the financials…

My proprietary Growth-Value-Income algorithm shows a score of 7 out of 10. Anything at 7 or higher is good.

This algorithm looks at the profitability of a company relative to its share price, its valuation, its revenue growth, its dividend yields and its cash flow generation. We look at every single aspect of a company you can imagine. We take a look at it, we turn it inside out and upside down. You name it, we’re doing it.

Cash return on capital invested – CROCI – is at 15%. We look for anything with a CROCI in the top quartile, or top 25%, of all stocks. When you hold a basket of these stocks for 12 months and then the next year pick the next 25% of the best CROCI companies… that basket generally tends to produce 30% per year. Not every year and not every stock in the basket, but as a whole over the longer term… these companies produce a 30% per annum return.

A few other metrics to consider… The stock price is up over six months. The Sortino ratio, a measure of the average return versus the risk, or volatility, of missing that return, is positive. I’d like it to be above 1.0, but that’s rare. It’s 0.3, which is fine. Return on capital employed is 10.8% – another good one.

The only negative here is stock price volatility. It’s a bit high, but that’s really more upside volatility than anything else.

Let’s have a look at forecast growth. Alliance is forecast to grow 54% in terms of sales. Profitability is forecast to grow 216%. Pretax profits are forecast to grow 272%.

Now, none of that’s any good if it’s all reflected in the share price already. So how can we tell?

Well, we look at the forecast share price to profitability. That’s at 5.1. In other words, the stock is currently trading at a multiple of 5 times forecasted profitability.

That means those forecasts are not reflected in the share price. A multiple of 5 is quite low.

So if Alliance hits those numbers, let alone exceeds them, the share price will rise.

Now, here’s where today’s Stock of the Week gets a little bit more detailed and a little bit more interesting.

I’ve looked at the price chart and projected forward how the stock has been trading over the past two years. It’s been in a steep incline and a steep channel. If we project that channel forward and assume the stock will continue doing what it’s done for the past two years, it’ll continue in that upward channel.

Let’s assume that in a year, it ends up at the bottom of the channel. The channel’s going up and the stocks ends up at the bottom of it.

My projection suggests you’d get more than a 100% return.

How will we know if we’re wrong? The stock will drop out of that channel. But as long as it’s in that channel, we’re on track to see a double.

You can see all the data and charts I used for my analysis of Alliance Resource Partners by checking out the latest episode of Stock of the Week.