Is Constellation Energy Still a Standout After Recent Stock Dip and Impressive Yearly Gains?

Thinking about what to do with Constellation Energy stock? You are not alone. With so much movement in the market, it can be tough to know when to sit tight and when to take action. Lately, Constellation Energy has given investors a lot to talk about. Over the last week, the stock dipped 3.7%, and in the past month, it slid by 5.1%. If you zoom out, the story becomes more interesting. Shares are still up a notable 28.1% year-to-date, and an impressive 60.4% over the past 12 months. Looking back even further, three-year returns stand at 293.3%, making it one of the market’s standouts in the energy sector.

This kind of long-term growth often leads investors to wonder if the market's pricing is getting ahead of itself or if there is still room for further gains. Several industry developments, such as the push toward cleaner power generation and increased reliability concerns on the grid, have kept sentiment positive, even if short-term volatility makes some investors nervous. But are the fundamentals keeping up?

When it comes to traditional measures of value, Constellation Energy’s current valuation score is 0, indicating it does not appear undervalued based on any of the six common checks analysts use to spot bargains. However, numbers alone rarely tell the entire story.

Here is a look at the main valuation methods analysts rely on and what they indicate about Constellation Energy today. In addition, at the end, we will explore a more dynamic way to think about valuation that could provide a better perspective.

Constellation Energy scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Constellation Energy Cash Flows

A Discounted Cash Flow (DCF) model projects a company's likely future cash flows and calculates what they would be worth if received today. This approach helps estimate what a company's stock should be worth, based on its expected ability to generate cash in years to come.

For Constellation Energy, analysts report a current Free Cash Flow of negative $2.60 Billion, reflecting the company’s significant investments and spending in the most recent period. Looking at projections, Free Cash Flow is expected to rise sharply to $3.63 Billion by 2029. Estimates for the next ten years suggest generally positive growth, especially in the mid to late 2020s. After that point, growth rates are expected to moderate, according to Simply Wall St’s extrapolations.

When these future cash flows are discounted to today’s value, the DCF model produces an estimated intrinsic value of $220.80 per share. Based on the most recent share price, Constellation Energy stock is judged to be 40.7% overvalued using this method.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Constellation Energy.

Our DCF analysis suggests Constellation Energy may be overvalued by 40.7%. Find undervalued stocks based on DCF analysis or create your own screener to find better value opportunities.

Approach 2: Constellation Energy Price vs Earnings

For profitable companies like Constellation Energy, the Price-to-Earnings (PE) ratio is a useful tool for valuation. It reflects how much investors are willing to pay today for each dollar of current earnings. This offers a quick way to assess a company’s earnings power compared to its market price. The “right” PE ratio can shift depending on factors such as the expected growth rate and the risk associated with that growth.

Constellation Energy’s current PE ratio sits at 32x. This is noticeably higher than the Electric Utilities industry average of about 20.4x and also above the average for similar peers, which is roughly 21.7x. This premium suggests that investors expect stronger growth or consider Constellation Energy to be a higher quality business compared to its industry peers.

Rather than only comparing industry and peer averages, Simply Wall St uses a “Fair Ratio.” This is a customized multiple based on the company’s expected earnings growth, profit margins, risk profile, market cap, and industry factors. For Constellation Energy, the Fair PE ratio is calculated to be 25.8x. Since this measure takes into account more than basic comparisons, it offers a more tailored and realistic benchmark for fair valuation.

Comparing the current PE ratio of 32x to the Fair Ratio of around 25.8x suggests the stock is priced at a significant premium relative to its own fundamentals and risk profile.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Constellation Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company’s future. It combines your expectations about how the business will grow, how much profit it will make, and what it might be worth, adding an extra layer of context to the numbers. Narratives help you connect the dots between a company’s unique journey, realistic financial forecasts, and what you determine is a fair value for the stock. Best of all, Narratives are a free, easy-to-use feature on Simply Wall St’s Community page, trusted by millions of investors.

By creating a Narrative, you can explicitly lay out your reasoning and compare your custom Fair Value to the market price, helping you decide if it is time to buy, sell, or wait. Narratives update dynamically when new events, earnings, or news are released, keeping your thesis relevant and actionable. For example, with Constellation Energy, you might see some investors forecasting a fair value as high as $393.00 based on optimistic growth assumptions, while others might take a more cautious view at $184.05. This allows you to see the full range of perspectives and make more informed decisions.

Do you think there's more to the story for Constellation Energy? Create your own Narrative to let the Community know!

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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