Is Graco (GGG) Fairly Priced After Recent Share Gains And DCF Valuation Check
- If you are wondering whether Graco’s current share price reflects its true worth, you are not alone. This article is built to help you size up that question clearly.
- The stock recently closed at US$92.76, with returns of 6.2% over 7 days, 11.6% over 30 days, 12.2% year to date, 10.8% over 1 year, 36.0% over 3 years, and 37.3% over 5 years. These performance figures can influence how investors think about potential upside and risk today.
- Recent coverage has focused on Graco’s position in capital goods and how investors are weighing its long term prospects against current pricing. This offers some context for the recent share price moves. This mix of sentiment and company specific news provides a useful backdrop before comparing the market price to various valuation gauges.
- Graco currently has a valuation score of 1/6, meaning it screens as undervalued on only one of six checks. Next we will walk through the key valuation approaches and then finish with a more holistic way to think about what the stock might be worth.
Graco scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Graco Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s dollars to estimate what the entire business might be worth right now.
For Graco, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $568.1 million. Analyst inputs and extrapolated estimates suggest free cash flow of $706.0 million in 2028, with further projections through 2035 ranging from about $556.9 million to $1.1 billion in annual free cash flow, all in dollars.
When these projected cash flows are discounted back, the DCF model arrives at an estimated intrinsic value of about $93.98 per share. Compared with the recent share price of $92.76, the model implies the stock is 1.3% undervalued. This is a very small gap and is within a normal margin of error for this kind of analysis.
Result: ABOUT RIGHT
Graco is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Approach 2: Graco Price vs Earnings
For profitable companies like Graco, the P/E ratio is a useful way to relate what you pay per share to the earnings the business is currently generating. It gives you a quick sense of how many dollars investors are willing to pay today for each dollar of earnings.
What counts as a "normal" P/E depends on how the market sees a company’s growth potential and risk. Higher expected growth and lower perceived risk usually support a higher P/E, while slower growth or higher uncertainty tend to justify a lower one.
Graco’s current P/E is 29.36x, which sits close to both the Machinery industry average of 29.16x and its peer group average of 28.64x. Simply Wall St also calculates a proprietary “Fair Ratio” of 23.42x for Graco. This Fair Ratio attempts to answer what P/E might make sense given the company’s earnings growth profile, profit margins, industry, market cap and risk characteristics. Because it incorporates these business specific factors, it can be a more tailored check than just lining the stock up against peers or the broader industry.
Comparing the current P/E of 29.36x to the Fair Ratio of 23.42x suggests the shares are trading above that Fair Ratio benchmark.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Graco Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which let you attach a clear story about Graco to the numbers you see for fair value, future revenue, earnings and margins.
A Narrative is simply your view of how the business might develop, translated into a financial forecast that links Graco’s story to expected cash generation and then to an estimated fair value per share.
On Simply Wall St’s Community page, used by millions of investors, Narratives are set up as an easy tool where you can compare your fair value to today’s market price to help decide whether the stock looks attractive, fully priced or expensive for your own approach.
Because Narratives refresh when new information such as earnings or company news is added to the platform, your view of Graco’s worth can stay aligned with the latest data without you rebuilding everything from scratch.
For example, one Graco Narrative might assume a relatively low fair value per share while another might assume a much higher fair value, yet both can be compared straight to the current price so each investor can act in line with their own expectations.
Do you think there's more to the story for Graco? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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