NextEra Energy (NYSE: NEE) has done a masterful job creating shareholder value over the years. During the last decade, the utility has generated an eye-popping total return of 700%. That has obliterated its peers' return (the S&P 500 Utility Index's total return was 191% during that timeframe) and the S&P 500 (267%). Powering that market-crushing performance has been NextEra's peer-leading earnings-per-share growth of 8% compounded annually over the past decade versus less than 3%, on average, for the top 10 power companies, due in large part to its focus on renewable energy.

However, all that outperformance has NextEra trading at a premium valuation compared to its utility peers. While NextEra deserves to trade at some premium, its current valuation is starting to get a little uncomfortable, given its relative growth rate.

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A nosebleed valuation

Shares of NextEra have run up nearly 40% since the start of 2020. However, its adjusted earnings per share only increased by 10.5% in 2020. Furthermore, they're on track to grow by about 7% in 2021 at the midpoint of its current forecast. NextEra now trades at more than 30 times its forward earnings. That's quite a hefty valuation multiple for a utility.

For comparison's sake, large-scale rivals Duke Energy (NYSE: DUK), Dominion Energy (NYSE: D), and Southern Company (NYSE: SO) trade at a mid-teens multiple of their forward earnings. While they're growing at a slower rate -- and aren't putting as heavy an emphasis on renewables as NextEra -- it's still tough to justify paying nearly twice as much for NextEra relative to other large-scale utilities.

Meanwhile, it trades at a hefty premium to other utilities with a similarly strong renewable-powered growth plan. For example, Xcel Energy (NASDAQ: XEL) expects to grow its earnings at a 5% to 7% annual pace through 2024 -- powered by its pivot toward clean energy -- which is slightly slower than NextEra's 6% to 8% yearly projected growth rate through 2023. Despite those similar profiles, Xcel only trades at about 20 times its forward earnings, implying NextEra fetches a roughly 50% premium.

Image source: Getty Images.

Even NextEra knows its stock is expensive

NextEra's management team is fully aware that its stock trades at a premium price. That's why they've been exploring using shares as currency to make a large acquisition. The company made a takeover approach to Duke Energy last year, valuing its rival at around $60 billion. However, Duke rejected that bid fearing it wouldn't win regulatory approval.

NextEra also made an all-stock offer to acquire Evergy (NYSE: EVRG) for about $15 billion. However, that rival also rejected its bid because of an inadequate price and the potential for regulatory hurdles.

The company seems to be looking for a deal that utilizes its premium stock value to make a highly accretive transaction. However, the company also appears to be cautious not to overpay since it wants a deal that would create shareholder value. CEO James Robo made that clear, stating at an industry conference last year that it wouldn't attempt a hostile takeover attempt since that would probably require it significantly overpaying for a target. Instead, it's seeking a mutually beneficial transaction that would create value for all stakeholders.

One pricey utility stock

NextEra's valuation is getting a bit too rich for my liking. While I wouldn't sell shares -- I plan on holding for decades given its leverage to the energy transition -- I probably won't buy more anytime soon. I want to wait for a sizable pullback, see it grow into its valuation, or for NextEra to secure a highly value accretive transaction before I increase my allocation to this scorching hot utility so that I don't get burned if the stock cools off.

This article represents the opinion of the writer(s), who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Matthew DiLallo owns shares of NextEra Energy. The Motley Fool recommends Dominion Energy, Inc, Duke Energy, and NextEra Energy. The Motley Fool has a disclosure policy.