MGE Energy (MGEE) shares slipped slightly over the past week, continuing a downward trend that has stretched across several months. Even with recent earnings growth, investors seem unimpressed as the stock has lost 14% year-to-date.
This latest drop brings MGE Energy’s share price return for the year to a challenging -13.8%, reflecting fading investor momentum despite steady earnings growth and broader sector shifts. Looking at a longer timeframe, the company’s total shareholder return stands at -21.35% for the past year, but remains positive over three and five years. This suggests resilience beyond the recent slide.
With a muted stock price and steady earnings gains, is MGE Energy now flying under the radar, or is the current valuation simply reflecting future growth prospects and leaving little room for upside?
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Price-to-Earnings of 21.8x: Is it justified?
At MGE Energy's last close of $80.13, shares trade at a price-to-earnings (P/E) ratio of 21.8x. This multiple is notably above both the industry average and the level implied by fundamental analysis, inviting a closer look at whether growth prospects or other factors justify the market's premium.
The P/E ratio compares a company’s share price against its per-share earnings and offers a shorthand for how much investors are willing to pay for each dollar of profit. For a utility like MGEE, this is a key gauge of market confidence in the company’s earnings power and stability.
MGEE’s P/E of 21.8x exceeds the US Electric Utilities industry average of 20.5x and also surpasses the estimated fair P/E of 19.4x derived from company fundamentals. This suggests the stock may be priced for stronger growth or safety than peers, but current sector headwinds and growth trends may limit upside. The fair ratio provides a potential anchor for future market movements.
Another View: SWS DCF Model Suggests Undervaluation
While MGE Energy appears overvalued based on its price-to-earnings ratio, our DCF model takes a more optimistic stance. The SWS DCF model values MGEE at $122.35 per share, about 34.5% above the current price, indicating a potential undervaluation by the market.
This sharp difference in valuation raises a key question: are investors focusing too much on near-term earnings, or is the discounted cash flow model too optimistic about MGEE’s long-term prospects?
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out MGE Energy 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 927 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 MGE Energy Narrative
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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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