Southwest Gas Shares Steady in 2025 Amid Industry Buzz and Valuation Questions

If you are standing at a crossroads about what to do with Southwest Gas Holdings stock, you are in good company. The stock has meandered a bit over the past month, down 0.8%. Zoom out and the numbers get more impressive. Year to date, Southwest Gas Holdings sports an 11.3% return, almost perfectly matched by its 1-year climb of 11.2%. In fact, go back five years and you are looking at returns of 38%. Not too shabby for an energy player, especially with recent market buzz surrounding the gas utilities space and evolving regulatory landscapes impacting investor sentiment.

But digging deeper, the real question many investors are asking is, “Is Southwest Gas Holdings undervalued, or have all the easy gains already been priced in?” To help you answer that, we will be unpacking a set of six key valuation checks typically used by analysts, each designed to spotlight a true bargain. Here is the twist: When we apply these checks, Southwest Gas Holdings earns a value score of 0, meaning it does not show signs of undervaluation on any of them.

So do recent price moves tell the whole story, or is there more to uncover about what this company is really worth? Next, we will walk through each valuation approach in detail, then reveal an even smarter way to assess value that most investors overlook.

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

Approach 1: Southwest Gas Holdings Dividend Discount Model (DDM) Analysis

The Dividend Discount Model (DDM) is a classic approach for valuing stocks that pay regular dividends. It estimates the intrinsic value of a company by projecting future dividend payouts and discounting them to present value, accounting for expected dividend growth over time.

For Southwest Gas Holdings, recent data shows an annual dividend per share (DPS) of $2.60 and a remarkably high payout ratio of nearly 92%. With a return on equity (ROE) of 4.7%, the expected long-term dividend growth rate is projected at just 0.38%, as calculated using the formula (1 minus payout ratio) multiplied by ROE. This low growth rate reflects limited potential for dividend expansion in the near future because of the company’s high payout.

Applying the DDM methodology, the estimated fair value for Southwest Gas Holdings is $40.65 per share. This figure suggests the stock is trading at a 92.4% premium to its intrinsic value based on dividend projections alone, indicating a significant overvaluation if dividends are your primary investment focus.

Result: OVERVALUED

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

Our Dividend Discount Model (DDM) analysis suggests Southwest Gas Holdings may be overvalued by 92.4%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Southwest Gas Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely favored metric for valuing established, profitable companies like Southwest Gas Holdings. This measure helps investors understand how much they are paying for each dollar of earnings and is particularly insightful for businesses with consistent profitability, as it reflects both market expectations and underlying company performance.

Growth prospects and company-specific risks play a major role in what investors view as a fair PE ratio. Companies anticipated to grow faster or with steadier earnings often command higher PE ratios, while those facing heightened risks or slower growth see lower valuations. For Southwest Gas Holdings, the current PE stands at 29.06x, noticeably higher than the Gas Utilities industry average of 13.17x and above the peer average of 21.94x.

Simply Wall St’s proprietary Fair Ratio for Southwest Gas Holdings is 24.46x. Unlike basic comparisons with industry averages or peers, the Fair Ratio offers a more tailored assessment that incorporates not only growth and risk but also profit margins, industry context, and company size. This makes it a more reliable benchmark for determining fair value. Comparing the Fair Ratio to the actual PE, Southwest Gas Holdings is trading modestly above what would be considered fair based on its profile today, but the gap is not substantial enough to signal a glaring mispricing.

Result: ABOUT RIGHT

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 Southwest Gas Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your story or perspective about a company, connecting its business outlook and your own assumptions about future revenue, earnings, and profit margins, which together help you estimate an underlying fair value. Rather than just relying on historical ratios or static models, Narratives allow you to link real-world developments and your personal view of where the business is heading directly into your forecast. This approach ties story, numbers, and valuations into a single, accessible framework.

Narratives are simple to use, dynamically update whenever relevant news or earnings are released, and are available right now on Simply Wall St's Community page, already used by millions of investors. With Narratives, you can see whether your chosen fair value justifies buying, holding, or selling as the current share price moves, and compare your view with other investors in real time. For example, one investor might forecast robust growth from infrastructure projects and see a fair value of $82.50, while another anticipates margin pressures and regulatory risks, leading them to a lower valuation. This demonstrates how Narratives empower you to act on your own insights.

Do you think there's more to the story for Southwest Gas Holdings? 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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