Algonquin Power (AQN) shares closed nearly 10% higher on Friday after posting an earnings beat - that’s ~30% higher since we pitched it to subscribers in February.

While many have lazily chalked up the jump in price to Q1 results, the reality is that it ran on the back of this statement from the conference call:

The reason why boils down to market psychology, and understanding the difference between narrative and fundamentals.

How narrative drove AQN’s YTD performance

As stated above, we wrote at length about AQN’s attractive underlying fundamentals in our original pitch. If that part of the story interests you, the case we laid out remains largely unchanged, so give it a read.

Fundamentals are the long-term weighing machine - if you’re patient, the price should catch up at some point. In the near-term though, there’s only one thing driving price: capital flows, which are driven by narrative.

This should be pretty intuitive. Algonquin’s underlying fundamentals don’t look any different today than at the beginning of the year, but the narrative was at a local trough then, given 2024’s challenges and weak earnings expectations for 2025.

As 2025 progressed, institutional money started to price in expectations for 2026, gradually driving the share price up. Then a new piece of information - a commitment to give guidance through 2027 - forced investors to sharpen their pencils on what things look like two years from now (a much cleaner story).

Where in the narrative cycle are we now?

In short: there’s still upside but the easy money has been made, with forward valuations closing most of the gap to the peer group.

While we wouldn’t be surprised to see shares higher ahead of the June investor day, it could be range bound in the medium-term for the same reason it’s run 30% this year. Once 2027 guidance is given, the narrative shift will have played out.

From there, it becomes a “prove it” story. Investors will hold AQN accountable to its guide, making the upside case more gradual as quarterly data points roll in. While it’s clear management’s goal is to trade at a premium to the group…

… that too will require a couple of years of execution for the market to buy in.