Warning: This Skyrocketing Stock Has a Hidden Risk

SNC Lavalin (TSX:ATRL) stock is roaring higher, but the company faces political risks.

| More on:
Caution, careful

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sometimes, the fastest-rising stocks are actually the riskiest. Although you might envy somebody who bought such a stock near its all-time lows, it doesn’t mean you should buy today. First, stocks that rise a lot in a short timeframe tend to give investors a bumpy: if you’d bought early, would you have had the stomach to hold it all the way up? Second, sometimes companies just stop performing well at a fundamental level, and then what you see is a declining share price that never reverses.

In this article, I’ll explore one Canadian company with a hidden risk factor that may make it not worth its rapidly rising stock price.

SNC Lavalin/AtkinsRealis

AtkinsRealis (TSX:ATRL) is a Canadian contractor that was formerly known as SNC Lavalin. The company’s stock has really been ripping this year, up an astounding 72% over the last 12 months. It’s no secret why this is happening: the company’s sales are up 26% over that period. Earnings (AKA profits) are down over that period. However, the company turned profitable in the most recent quarter, a period in which it earned $0.36 per share. That was up from $0.01 in the same quarter a year before. That’s a 3,500% one-year growth rate — it’s not surprising that the stock is up after that happened. This is a rate of growth you don’t see very often.

Granted, a big part of why it was possible was because ATRL’s margins were so tiny in the year-ago quarter. As Warren Buffett says, size is the anchor of performance. AtkinsRealis had only $1.2 million in total profit in the year-ago quarter — if that sounds like a lot to you, remember that we’re talking about a major corporation here — so it’s not surprising that ATRL grew tremendously. Think of a college student whose best-paying job ever was fast food, who graduates and then becomes a doctor. That’s the kind of growth that can happen when you start from a small base.

Created with Highcharts 11.4.3AtkinsRéalis Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

A bad reputation

Having established that ATRL is growing rapidly as a company and seeing its stock price appreciate, it’s time to look at that “risk factor” mentioned at the start of the article:

It’s the company’s reputation.

Back when it was known as SNC Lavalin, the company was embroiled in a major scandal, where it was accused of bribing a Libyan official by paying him $1.9 million in travel expenses. The scandal reached the highest level of Canadian politics, as Justin Trudeau was accused of covering for the company. In the end, SNC Lavalin admitted wrongdoing and got fined.

Foolish takeaway

Peter Lynch once said, “Companies only change their names when they get married or have a bad reputation to cover for.” In AtkinsRealis’s case, it’s clearly the latter. The company has not married (i.e., merged with or been acquired by another), so its name change was obviously to direct investors’ attention away from its misdeeds. This company is performing well financially this year, but the aura of corruption around it leaves intelligent investors feeling skeptical.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

a man relaxes with his feet on a pile of books
Energy Stocks

I’d Put $5,000 in This Dividend Giant for Decades of Income

Looking for a stock that can provide decades of income in addition to strong growth and defensive appeal? Consider this…

Read more »

engineer at wind farm
Energy Stocks

2 Canadian Oil and Gas Stocks to Buy and Hold Through Energy Transitions

Enbridge is one oil and gas stock that has the network and infrastructure to thrive despite the energy transition.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Enbridge vs. TC Energy Stock: How I’d Split $12,000 Between Pipeline Dividend Giants

Investing in blue-chip TSX dividend stocks such as Enbridge and TC Energy is a good strategy for income-seekers in 2025.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Energy Stocks

3 Canadian Green Energy Stocks to Buy and Hold in Your TFSA for a Sustainable Future

Renewable energy stocks are some of the best options for long-term growth, and these are top options.

Read more »

oil pump jack under night sky
Energy Stocks

Canadian Natural Resources: Buy, Sell, or Hold in 2025?

Canadian Natural Resources is down more than 20% in the past year. Is CNQ stock oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

These 2 Energy Stocks Are a No-Brainer in Today’s Market

These two energy stocks have reliable operations and pay significant dividends, making them two of the best stocks that you…

Read more »

Canada national flag waving in wind on clear day
Energy Stocks

Top Canadian Value Stock I’d Consider During This Buying Opportunity

Are you looking to put some cash to work during this downturn? Here are two TSX stocks to have on…

Read more »

A plant grows from coins.
Energy Stocks

Got $25,000? Turn it Into $200,000 in a TFSA as Canadian Dollar Gains

This energy stock may not have a high dividend, but it certainly has a high rate of growth to look…

Read more »