AF Gruppen (OB:AFG): Valuation in Focus After Securing Major Sustainable Wastewater Contract

AF Gruppen (OB:AFG) has secured a NOK 582 million contract to lead construction at the Fuglevik wastewater treatment plant in Moss Municipality. The project highlights the company’s environmental focus and further builds on its reputation in sustainable infrastructure.

See our latest analysis for AF Gruppen.

AF Gruppen’s share price has been gathering steam, rising over 21% year to date and boasting a 34.6% total shareholder return over the past year. The positive momentum seems to reflect growing investor confidence, especially following high-profile contract wins and the company’s ongoing focus on sustainable construction.

If you’re curious where else opportunity might be building, now’s the perfect time to discover fast growing stocks with high insider ownership

With AF Gruppen’s share price already rallying and optimism building on the back of this major contract, investors may wonder if there is still untapped value here or if the market has fully priced in the growth story.

Price-to-Earnings of 20x: Is it justified?

AF Gruppen’s current price-to-earnings ratio stands at 20x, placing it noticeably above both its direct peers and the broader construction industry. With a last close price of NOK179.8, this reads as a hefty valuation compared to competitors trading at lower earnings multiples.

The price-to-earnings (PE) ratio measures what investors are willing to pay per unit of company earnings. In construction and engineering, it often reflects confidence in stable or growing profitability, especially for firms involved in high-profile, recurring projects.

However, AF Gruppen’s 20x multiple is expensive compared to its peer average of 14x and even to the wider European construction industry’s 14.3x. This suggests the market is assigning a premium, possibly due to recent contract wins or expectations of continued growth, but it sits outside the typical range for the sector.

Should the company meet or exceed those expectations, the valuation could hold. If not, the market may calibrate downwards to align with sector norms.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 20x (OVERVALUED)

However, risks remain, including any slowdown in revenue growth or failure to meet earnings expectations. These factors could trigger a reassessment of AF Gruppen's valuation.

Find out about the key risks to this AF Gruppen narrative.

Another View: DCF Model Suggests Undervaluation

While the market assigns a steep valuation based on the earnings multiple, our DCF model paints a different picture. According to this approach, AF Gruppen’s shares trade about 22% below their estimated fair value. This may indicate potential for upside if growth and cash flows materialize as projected. However, it remains unclear whether the market is being overly cautious or if there is still unpriced risk.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AF Gruppen for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 879 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own AF Gruppen Narrative

If you’d rather chart your own course or have a unique perspective on AF Gruppen’s prospects, you can shape your own analysis in just minutes. Do it your way

A great starting point for your AF Gruppen research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

Looking for More Investment Ideas?

Don’t settle for just one opportunity. The Simply Wall Street Screener connects you to timely picks across today's most exciting sectors. Your next winning move is always within reach.

• Tap into reliable income streams by scanning these 16 dividend stocks with yields > 3% with strong yields and stable payout histories.
• Jump ahead of the curve by checking out these 25 AI penny stocks, which shape breakthroughs in artificial intelligence and automation.
• Position your portfolio for outsized growth with these 3593 penny stocks with strong financials, combining solid fundamentals and high potential in emerging industries.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com