Avista stock has delivered a 24.8% total return over the past three years, and at a recent price of US$42.23 the valuation picture is now mixed, with the Dividend Discount Model (DDM) suggesting a premium to its intrinsic value while market based multiples look closer to fair value.

• Over the last 3 years Avista has returned 24.8%. This puts more focus on whether that performance is already fully reflected in the current share price.
• For income focused investors, the stability of Avista's regulated cash flows may support its valuation. However, any pressure on allowed returns or higher capital spending needs could weigh on what investors are willing to pay.
• Avista scores 3 out of 6 on our valuation checks, pointing to a mixed picture rather than a clear bargain or clear overvaluation.

The key question now is whether Avista's current price, which screens as about right on multiples but above the DDM based intrinsic value, leaves enough room for future returns to justify staying invested.

Has Avista Run Too Far on Dividends?

The Dividend Discount Model (DDM) values Avista by projecting its future dividend stream and discounting it back to today. For Avista, the model uses an annual dividend per share of about $2.09, a return on equity of 7.27% and an estimated payout ratio of 82.46%. That combination implies a relatively modest dividend growth rate of about 1.28%, which is consistent with a mature, income focused utility where most earnings are already being paid out.

Based on these assumptions, the DDM points to an intrinsic value of about $35.90 per share. Compared with the recent share price around $42.23, this suggests the stock trades at roughly a 17.6% premium to the model’s estimate and therefore screens as overvalued on this dividend driven view. For investors who rely on dividend models to evaluate Avista, the current yield and slow implied growth appear largely reflected in the price, with limited margin of safety if future dividend growth or payout flexibility is constrained.

On the DDM assumptions, Avista currently appears overvalued relative to its estimated dividend driven intrinsic value.

Our Dividend Discount Model (DDM) analysis suggests Avista may be overvalued by 17.6%. Discover 47 high quality undervalued stocks or create your own screener to find better value opportunities.

Is Avista Fairly Priced on Earnings?

P/E is usually a useful way to look at a regulated utility like Avista because earnings are closely tied to its allowed returns. At a current P/E of about 16.9x, Avista trades below the Integrated Utilities industry average of roughly 19.2x and also below the peer group average of about 21.9x.

The fair P/E ratio implied by the model for Avista is about 17.6x, only slightly above where the stock is currently trading. That small gap suggests the market price is broadly in line with what would be expected given Avista's earnings profile and risk, rather than pointing to a clear discount or premium relative to peers or the tailored fair multiple.

On the P/E multiple, Avista stock currently appears to be priced at roughly fair value rather than clearly cheap or expensive.

The Avista Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Avista pick up where this valuation puzzle leaves off. They lay out clear scenarios for how Avista's growth, margins and earnings could evolve, so you can see what would need to change for the stock to be worth materially more or less than today’s price. Each scenario links its numbers to a specific view of how growth, profitability and risk might develop, which you can revisit as new information comes through on the Community page.

If you have a number driven view on where Avista's growth, margins and execution go from here, consider sharing a Narrative in the Simply Wall St community to set out your case clearly. You can then track how your thesis holds up as fresh data and company updates come through.

Do you think there's more to the story for Avista? Head over to our Community to see what others are saying!

The Bottom Line

For Avista, the Dividend Discount Model (DDM) points to an intrinsic value that sits meaningfully below the current share price, while the P/E view suggests the stock is priced at about right compared with peers. That split mainly reflects how the DDM leans on modest dividend growth and high payout, while the multiple view leans on earnings stability and current sentiment toward regulated utilities. With valuation checks landing in the middle, the key question is whether Avista can sustain its dividend profile without heavier funding pressure, or whether investors eventually demand a wider discount for that income stream.

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.