HA Sustainable Infrastructure Capital has had an impressive run over the past six months as its shares have beaten the S&P 500 by 14.4%. The stock now trades at $33.43, marking a 28.7% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

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Why Is HA Sustainable Infrastructure Capital Not Exciting?

We’re happy investors have made money, but we don't have much confidence in HA Sustainable Infrastructure Capital. Here are two reasons we avoid HASI and a stock we'd rather own.

1. Previous Growth Initiatives Haven’t Impressed

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, HA Sustainable Infrastructure Capital has averaged an ROE of 8%, uninspiring for a company operating in a sector where the average shakes out around 10%.

2. High Debt Levels Increase Risk

HA Sustainable Infrastructure Capital reported $301.8 million of cash and $5.87 billion of debt on its balance sheet in the most recent quarter.

As investors in high-quality companies, we primarily focus on whether a company’s profits can support its debt.

With $195.3 million of EBITDA over the last 12 months, we view HA Sustainable Infrastructure Capital’s 28.5× net-debt-to-EBITDA ratio as inadequate. The company’s lacking profits relative to its borrowings give it little breathing room, raising red flags.

Final Judgment

HA Sustainable Infrastructure Capital’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 11.8× forward P/E (or $33.43 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.

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