GE Vernova Just Beat Earnings by a Mile. Is This the Energy Stock to Own Right Now?

The fact that GE Vernova (NYSE: GEV) just walloped its first-quarter earnings estimates isn't exactly surprising. Thanks to the proliferation of artificial intelligence (AI) data centers, the world's suffering a serious shortage of electricity. GE Vernova makes power-producing equipment. End of story.

The matter isn't quite so simple for investors who already own or are eying this stock, though. See, the crowd's been bidding GEV shares higher for some time now, anticipating last quarter's smashing success. Now there's a not-so-small valuation problem.

An unsurprisingly good quarter

GE Vernova turned more than $9.34 billion in revenue into an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $896 million during the three months ending in March. Those numbers are up 16% and 96% year over year, respectively, and measurably better than the $9.25 billion and $772 million analysts were expecting.

Image source: Getty Images.

The future looks bright, too. The company raised its full-year outlook, from previous revenue guidance of $44 billion to $45 billion to a range of between $44.5 billion and $45.5 billion, inflating projected profit margin and cash-flow figures accordingly.

Its power-production division is driving most of this past and future growth, of course, as demand for its natural gas turbines ramps up. This arm did nearly $5 billion worth of reported business last quarter, but received $10 billion worth of new orders. All told, the company's total backlog now stands at $163.3 billion, up 40% from the end of last year's Q1. That said, GE Vernova's wind power and electrification arms are doing well, too, with electrification seeing 61% year-over-year revenue growth during the first quarter to just under $3 billion, and adding $7.1 billion in new orders of its own.

It all sounds fantastic. Just don't be too quick to dive into this well-proven company's stock.

How to handle it from here

This is still just the beginning, too. The International Energy Agency expects worldwide demand for power to grow an average of 3.5% per year through 2030. That doesn't seem like much. But for a slow-moving industry that's already stretched thin, that's a lot.

And all of this opportunity may already be reflected in GEV stock's price, and then some. Shares of this 2024 spinoff from industrial giant GE are up more than 700% since then, and higher by more than 300% from last year's low when the global electricity crunch became undeniable. This move has pushed GEV shares up to 80 times this year's expected earnings, and more than 50 times next year's projected profits. The stock's current price doesn't start making sense until you get to 2028's forecast earnings of $29.85 per share.

That, however, is a long time for an already overvalued ticker to hold its ground, let alone continue rallying. Indeed, while Tuesday's Q1 report was clearly bullish for the stock, the big move might also be the surge that starts a wave of profit-taking.

This might tell you all you need to know: Analysts' current consensus price target of $968.05 is 14% below GEV's present price.

Just leave it on your watch list. Any sizable pullback is also a long-term buying opportunity.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Aerospace and GE Vernova. The Motley Fool has a disclosure policy.