EDP Renováveis (ENXTLS:EDPR): Assessing Valuation After New Asia Pacific Clean Energy Partnership

EDP Renováveis (ENXTLS:EDPR) just expanded its Asia Pacific footprint, with EDPR Sunseap signing a Memorandum of Understanding with Korea East West Power to co develop clean energy projects targeting over 2 gigawatts of capacity by 2025.

See our latest analysis for EDP Renováveis.

The market seems to be noticing this push, with a roughly 21 percent one year total shareholder return and a strong 90 day share price return of about 21 percent, suggesting momentum is rebuilding after weak multi year performance.

If this deal has you thinking about where the next wave of renewables backed growth might come from, it could be worth exploring fast growing stocks with high insider ownership.

Yet with EDPR still loss making, trading only modestly below analyst targets and rebounding hard from multi year declines, investors must ask whether this latest Asia Pacific deal signals a genuine buying opportunity or if markets are already pricing in future growth.

Price to Sales of 5.7x: Is it justified?

On a price to sales basis, EDP Renováveis looks richly valued at the last close of €11.84, trading at a noticeably higher level than key benchmarks.

The price to sales ratio compares a company’s market value to the revenue it generates. This is a common yardstick for loss making or early stage renewable energy players where earnings are not yet a reliable guide. For EDPR, this matters because the business is still unprofitable, so investors are effectively paying up today for anticipated future growth in sales and eventual profitability.

EDPR currently trades on a price to sales multiple of 5.7x, which is more than double the European Renewable Energy industry average of 2.6x and well above the peer average of 3.4x. It also sits higher than the estimated fair price to sales ratio of 4.7x, suggesting the market is assigning a premium that the SWS fair ratio framework implies could compress if expectations cool or fundamentals do not catch up.

Explore the SWS fair ratio for EDP Renováveis

Result: Price-to-Sales of 5.7x (OVERVALUED)

However, sustained net losses and only a modest 7 percent discount to analyst targets could quickly cap upside if execution or power pricing disappoints.

Find out about the key risks to this EDP Renováveis narrative.

Another View: Our DCF Model Paints A Harsher Picture

While the market is already paying a rich 5.7x sales, our DCF model is even more cautious. It points to a fair value of about €2.23 per share versus the current €11.84. That implies EDPR could be significantly overvalued, so what exactly is the market betting on?

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 EDP Renováveis 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 906 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 EDP Renováveis Narrative

If you see the story differently or want to test your own assumptions against the numbers, you can build a personalized view in minutes: Do it your way.

A great starting point for your EDP Renováveis research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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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.

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