Southwest Gas Holdings (SWX) has come into focus for investors after recent share price moves, prompting a closer look at how its current valuation, returns and fundamentals fit into a regulated utilities portfolio.

Recent share price moves for Southwest Gas Holdings have been steady rather than sharp, with an 11.05% year to date share price return and a 26.78% total shareholder return over one year suggesting that momentum has been gradually building over time.

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With Southwest Gas Holdings now at US$89.01 and trading at an 11.5% discount to an analyst price target of US$99.25, are you looking at an undervalued regulated utility, or is the market already pricing in future growth?

Most Popular Narrative: 11% Undervalued

Against the current price of $89.01, the most followed narrative pegs Southwest Gas Holdings' fair value at $100, putting that view slightly ahead of the market.

Robust customer growth facilitated by ongoing population and economic expansion in the Southwest, with 40,000 new meter connections in the last 12 months, suggests extended demand for natural gas in core service territories, directly underpinning long-term revenue and earnings growth.

Read the complete narrative. Read the complete narrative.

Want to see what sits behind that $100 mark? The narrative leans heavily on expectations for future revenue, higher margins and an earnings multiple that is usually reserved for faster growing sectors.

Result: Fair Value of $100 (UNDERVALUED)

However, you also need to weigh the risk that faster decarbonization policies or stricter caps on cost recovery could limit future returns and weaken the bullish case.

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Another View: What The P/E Ratio Is Saying

The $100 fair value narrative leans on future earnings and margins, but the current P/E of about 27x paints a different picture. That is richer than peers at 17.3x, the global gas utilities average of 14x, and even the fair ratio of 21.2x. This raises the question of how much optimism is already in the price.

To see how this earnings based view stacks up in more detail, take a closer look at the valuation breakdown via See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With sentiment split between opportunity and caution, it makes sense to check the underlying data yourself, weigh both sides quickly, and see whether the 1 key reward and 2 important warning signs.

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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.