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It’s a Trap: Atlantic Power Corporation (AT)

I did a recent screen and the stock (AT) looked very attractive with its valuations. I screened for companies with low debt to equity, high dividend yield, and reasonable P/B ratio.

Ticker Market Cap P/E P/B P/Cash Dividend Yield EPS (ttm) EPS growth past 5 years Total Debt/Equity Price
PSEC 2516.34 8.03 1.03 1133.49 11.83% 1.39 9.42% 0.48 11.15
AT 3434.57 3.75 1.43 4.16 11.43% 2.66 -7.26% 0.23 9.97
SSL 27747.32 9.72 1.93 18.63 6.27% 4.4 7.59% 0.13 42.75
BP 129045.68 11.16 1.09 6.42 5.35% 3.62 -10.93% 0.41 40.4

 

 

 

With a juicy dividend yield over 10%, debt/equity 0.23, P/C at 4.03, and P/B at 1.43, this appears to be my kind of buy. However, with more research on their most recent annual report (the 2011 10-k), I saw 3 consecutive years of earnings deficits. I never buy a company with recent deficits, let alone 3 years in a row!

While the stock screener showed a positive EPS 2.66, this number must be based on quarterly report numbers and I can’t trust it until I see improvement in the annual reports. You have to be careful of these kind of errors and only use screens for initial research, then dig deep and see what the real story is. It might save you from buying a disaster like this one.

So until you see some earnings strength from this company, if ever, stay away and don’t try to catch this falling knife of a value trap.