NextDecade (NEXT): Assessing Valuation After New 20-Year LNG Agreements and Project Milestones

NextDecade (NEXT) has certainly grabbed investor attention this month after unveiling not one, but two new 20-year sale and purchase agreements tied to its Rio Grande LNG project. The company locked in commitments with EQT Corporation and ConocoPhillips for a combined 2.5 million tonnes per annum from Train 5, contingent on a positive final investment decision. On top of that, extending the key EPC contract price with Bechtel signals both growing momentum and real progress in getting the next train from blueprint to reality. These deals are clear signals of commercial demand meeting project advancement, the sort of news that tends to make investors sit up and wonder if the market’s risk view is shifting.

Against this backdrop, NextDecade’s share price has gained traction over the last year, up 41% while riding some turbulence over the past month. Shorter-term momentum has faded a bit recently, but these new SPAs and the ongoing conference circuit, including a CEO-led presentation at Gastech, showcase management’s focus on locking down long-term offtake and promoting its development story. Previous milestones on Train 4 and project financing continue to anchor the bigger growth narrative.

So the big question facing investors now is whether these commercial wins are providing a genuine buying opportunity, or if the market is already pricing in the next stage of NextDecade’s growth pipeline.

Price-to-Book Ratio of 7x: Is it justified?

NextDecade currently trades at a price-to-book ratio (P/B) of 7x, which is significantly higher than both the US Oil and Gas industry average of 1.4x and its peer group, where the average is 1.7x. This indicates that investors are presently willing to pay a notable premium for every dollar of the company’s net assets compared to similar companies in the sector.

The price-to-book ratio is an important valuation metric for asset-heavy industries like energy and infrastructure. It compares a company’s market value to the book value of its assets, and can be used to measure whether a stock is priced at a premium due to growth potential or if it is relatively undervalued compared to its underlying assets.

With its P/B ratio far above industry norms, the market is currently pricing in elevated expectations for future growth or successful project execution. This is despite NextDecade’s lack of meaningful revenue and ongoing unprofitability. This sizeable premium raises questions about whether recent project news fully justifies the current share price or if enthusiasm has gotten ahead of concrete financial performance.

Result: Fair Value of $1.59 (OVERVALUED)

See our latest analysis for NextDecade.

However, persistent unprofitability and volatile returns in recent months remain significant risks that could quickly change the upward outlook for NextDecade’s shares.

Find out about the key risks to this NextDecade narrative.

Another View: What Does Our DCF Model Say?

Taking a different approach, our SWS DCF model also sees NextDecade as overvalued based on its underlying cash flows. This adds weight to the idea that growth expectations are already built in. Or could there be pieces missing from both views?

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

Stay updated when valuation signals shift by adding NextDecade to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own NextDecade Narrative

If you see things differently or want to independently test your own ideas about NextDecade, you can dive deeper and assemble your own story in just a few minutes. Do it your way.

A great starting point for your NextDecade research is our analysis highlighting 1 key reward and 4 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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