Since the uber-mega-buyout of now former Income Investor pick TXU (NYSE:TXU) back in February, investors have been ec-static about electricity-generating companies. Merchant power firms like TXU compete for business, because they aren't regulated at the state level. They have the most to gain from rising energy prices, since no authority gets to decree their "fair" return on investment. Just to spice things up on the M&A front, merchant power companies are also easier to buy out than state-regulated utilities.

No wonder, then, that the other four largest U.S. merchant power outfits have been on an absolute tear this year. As if tight regional generation capacity paired with sloshing buckets of private equity money weren't enough to spark investor interest in the sector, Mirant (NYSE:MIR) announced on Monday that it's looking at strategic alternatives beyond its recent asset sales. An outright sale of the company is a real possibility.

It wasn't so long ago that Mirant and rival NRG Energy (NYSE:NRG) were emerging from bankruptcy out of the ashes of the Enron debacle. It was even more recently that Mirant fumbled a takeover bid for NRG. A vocal hedge fund which I will not name because I've temporarily run out of pirate puns seems to have convinced Mirant that the right thing to do is sell itself off. Other savvy investors, including Leon Cooperman of Omega Advisors, are encouraged by recent developments at Mirant as well.

So, for those of us who have been sitting on the sidelines as all of these stocks zap to new 52-week highs, the question is: What do we do? Well, looking at valuation is a good start.

Some of the firms we're talking about, namely Dynegy (NYSE:DYN) and Reliant (NYSE:RRI), aren't profitable. That's why EBITDA (a proxy for cash flow generation) tends to be the dominant metric in this space. TXU was valued at around eight times trailing EBITDA in the private equity-led buyout offer, and you should note that its smaller peers are trading above that level today.

You might want to ask yourself: Do I really want private equity's leftovers? Alternately, you might pause and wonder whether anyone ever made a fortune by betting on a situation that had already been bid up dramatically. I guess what I'm trying to say is that you should probably do nothing. After the thinking and the questioning, I mean. Those are good things.

There have got to be better bargains out there in the market today, and they're undoubtedly the ones that haven't already made front-page headlines.

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Fool contributor Toby Shute never really enjoyed doing the Electric Slide at bar mitzvahs. He owns none of the companies mentioned. The Fool's disclosure policy powers our whole operation.