The Pricing of Green Energy Companies in Scandinavia: Disclosing Bubble Indications and a Case Study Valuation of Ørsted A/S

Daniel Berg & Johan F. Kartveit

Student thesis: Master thesis


This thesis seeks to investigate indications of whether a bubble could be present within the Scandinavian renewable energy sector. For this purpose, a framework is developed for examining factors commonly associated with bubbles in the stock markets. By performing analyses, we found evidence of a heated atmosphere among investors and a shift in how green energy companies are priced relative to their underlying performance. We also observed a limited range of green energy companies available to investors, whereas the low level of interest rates was revealed to potentially serve as fuel for mispriced stocks. Further, Scandinavian yield spreads were found to display negative investor sentiment for the economies in general, putting the elevating growth expectations of green energy companies into further question. However, the investigated factors did not appear as extreme as during previous bubble-peaks. Hence, although our findings suggest that a potential bubble could have taken shape, it would likely be in its early stages. To gain a deeper understanding of the research topic, we examined the underlying fundamentals of Ørsted and performed a valuation to estimate its intrinsic value. Ørsted is a significant player within renewables and has seen its stock price increase from DKK 764 per 18.02.2020 to DKK 1.003 per 18.02.2021. However, we found the competitive environment in their core business segment to be rapidly intensifying as oil and gas companies push towards offshore wind. Our fundamental valuation estimated an intrinsic value of DKK 789, adding to our initial findings, which suggested the recent valuations of green energy companies might incorporate excessive growth expectations. Based on our findings, it appears too soon to insinuate that investors should stay away from the renewable energy sector. Still, worrying signals have been observed, and we urge investors to act with care. Specifically, we encourage thorough fundamental analyses before taking a position in the sector, enabling an assessment of whether the market’s current expectations appear realistic. As illustrated by the dot-com bubble, not all companies related to a booming industry can be the winners of tomorrow. Ultimately, stock prices in the green energy sector should also reflect this rationale, which currently does not appear to be the case.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2021
Number of pages163
SupervisorsOle Vagn Sørensen