Is Nexans Still a Buy Despite a Strong Share Price Rally?

The recent 21% surge in Nexans' share price has sparked a critical debate among investors: Is this rally justified by the company's fundamentals, or has the market overextended its optimism? As the global energy transition accelerates, Nexans-now a dedicated electrification pure player-has positioned itself at the intersection of high-growth demand and margin-driven transformation. However, conflicting valuation signals and evolving margin pressures complicate the investment case. This analysis examines Nexans' financial performance, strategic positioning, and valuation dislocation to determine whether the stock remains a compelling buy.

Valuation Dislocation: DCF vs. PE

Nexans' valuation appears to straddle two divergent narratives. On one hand, discounted cash flow (DCF) models suggest the stock is overvalued by 43.8% to 51.4%, with intrinsic value estimates ranging from €83.06 to €86.66 per share. These models hinge on assumptions about future cash flow growth, which may not fully account for the company's aggressive electrification bets or integration risks from recent acquisitions. On the other hand, Nexans' price-to-earnings (PE) ratio of 11.9x is significantly lower than the electrical industry average of 29.1x according to Longbridge, suggesting it trades at a discount to peers. Simply Wall St's fair PE framework further supports this, estimating a fair multiple of 15.0x, implying the stock is undervalued on an earnings basis.

This dislocation reflects a tug-of-war between short-term earnings momentum and long-term growth expectations. Nexans' H1 2025 results underscore its earnings resilience: adjusted EBITDA hit €441 million, a 11.7% margin, while free cash flow surged to €282 million, outpacing consensus estimates. Yet DCF skeptics argue that margin pressures-such as raw material volatility and integration costs-could dampen future cash flows.

Growth Sustainability: Electrification and Margin Resilience

Nexans' strategic pivot to electrification has been a key driver of its recent outperformance. The company's electrification segment delivered 9.4% organic growth in the first nine months of 2025, with subsea transmission projects contributing to a record €7.9 billion adjusted backlog. Strategic acquisitions, including ElectroCables in Canada and Cables RCT in Spain, have expanded its footprint in high-growth markets and strengthened local supply chains. These moves align with Nexans' goal to dominate the "PWR-Grid" and "PWR-Connect" segments, which are central to the global shift toward renewable energy infrastructure.

Margin resilience further bolsters the case for growth sustainability. Nexans' adjusted EBITDA margin of 11.7% in H1 2025 reflects structural improvements from its "SHIFT" program, which has streamlined operations and reduced product complexity. The company's Return on Capital Employed (ROCE) has surged from 9% in 2018 to 21% in 2024, demonstrating its ability to convert capital into profit. Analysts project free cash flow of €267 million in 2026 and €370 million in 2027, though these forecasts assume stable input costs and successful integration of new assets.

Energy Transition Exposure and Strategic Risks

Nexans' alignment with the energy transition is both a strength and a vulnerability. While electrification demand is expected to grow at a compound annual rate of 6–8%, the company's reliance on copper-a commodity prone to price swings-introduces volatility. Nexans has mitigated this risk by committing to a Net-Zero target by 2050 and increasing recycled copper content in its cables. However, raw material costs remain a wildcard, particularly as global supply chains face geopolitical and logistical disruptions.

Strategic risks also loom. Nexans' aggressive M&A activity, while enhancing its market position, could strain operational execution. The acquisition of ElectroCables, for instance, requires seamless integration to realize synergies. Additionally, the company's leadership transition in 2025 may impact the continuity of its transformation agenda.

Conflicting Analyst Forecasts and the Path Forward

Analyst forecasts for Nexans' 2026–2028 performance are mixed. While some models project free cash flow growth, others caution that margin pressures could erode long-term value. Nexans' 2028 targets-adjusted EBITDA of €1.15 billion and ROCE above 20% are ambitious but achievable given its current trajectory. The key question is whether the market has already priced in these outcomes.

For investors, the decision to buy Nexans hinges on their risk tolerance for valuation dislocation. The PE discount suggests undervaluation relative to peers, but DCF models imply overvaluation if cash flow growth slows. Nexans' strong balance sheet, with a 64% cash conversion ratio in H1 2025, provides flexibility to navigate uncertainties. However, the stock's 58.6% overvaluation in some DCF analyses warrants caution.

Conclusion

Nexans remains a compelling case study in the tension between growth and valuation. Its electrification strategy, margin discipline, and strategic acquisitions position it to capitalize on the energy transition. Yet the current share price rally may have priced in a degree of optimism that future earnings might struggle to meet. For long-term investors who believe in Nexans' ability to sustain its margin improvements and execute its electrification roadmap, the stock's PE discount offers a margin of safety. However, those wary of DCF-based overvaluation or margin pressures should approach with caution. In the end, Nexans' success will depend on its ability to balance aggressive growth with operational execution-a challenge it has historically navigated with discipline.