Should You Buy National Grid Shares

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Should You Buy National Grid Shares

Should You Buy National Grid Shares?

National Grid stock is doing really well this year, and the stock is trading near record highs. So, should you buy the National Grid stock in hopes that the bullish momentum will continue?

To understand this, we must look at what's the driving force behind the National Grid shares. For starters, National Grid is basically a monopoly, but a regulated one.

So, there are limits in place that protect the consumers from very high energy prices while also allowing the National Grid to earn a profit.

National Grid Share Price Target Is 1254p

A key reason why the National Grid stock price is surging is that the existing pricing framework is expiring. Now, a new contract called RIIO-T3 will take effect for a total of 5 years and will allow the firm to get 6.12% return on equity (real).

It is worth noting that National Grid has yet to accept the new framework and will need to make a decision in March. So, that's a key thing which is driving all the optimism over the National Grid shares.

But according to analysts, the share price target for National Grid is around 1254p. Sadly, that's the same level where the stock is trading, and it means there will be little to no upside.

But if the firm manages to negotiate the terms for RIIO-T3, then the National Grid share price target will be 1400p. This means an upside of around 8.7% if they manage to get better terms.

The bottom line is that most of the growth is now already reflected in the National Grid stock price. This also means we might get some serious volatility in the National Grid if the firm fails to meet its targets.

Last but not least, the outstanding debt of National Grid is also very high. Considering all of these things, the wise choice is not to invest in the National Grid stock.

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