Has The Market Overreacted To Elastic (ESTC) After A 45% One Year Share Price Slide?
- If you are wondering whether Elastic's current share price fairly reflects its long term potential, it helps to start by separating short term noise from what the market is actually pricing in.
- Elastic closed at US$61.03, and the stock has seen a 1.3% decline over the last week, a 14.5% decline over the last month, a 15.9% decline year to date, a 45.3% decline over the last year, and a 61.1% decline over the last five years, which may signal that expectations and risk perceptions have shifted over time.
- Recent coverage around Elastic has focused on how the company positions its search and data products in a competitive software market, as well as how it responds to broader sentiment toward higher growth software names. Together, these themes help frame why the share price has been under pressure and what kind of performance investors may now be expecting.
- Against that backdrop, Elastic currently records a valuation score of 5/6, meaning it screens as undervalued on most of Simply Wall St's checks. Next, we will walk through the different valuation approaches behind that score and then finish with a way to think about value that goes beyond the headline metrics.
Find out why Elastic's -45.3% return over the last year is lagging behind its peers.
Approach 1: Elastic Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and discounting them back to a present value using a required return.
For Elastic, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections in US$. The latest twelve month free cash flow sits at about $302.24 million. Analyst estimates are used for the earlier years, then Simply Wall St extrapolates further out, with projected free cash flow of $715.55 million in 2030 and additional estimates through 2035, all adjusted back to today using discount factors.
Adding these discounted cash flows gives an estimated intrinsic value of about $129.83 per share. Compared with the recent share price of $61.03, the DCF suggests the stock trades at roughly a 53.0% discount to that intrinsic estimate. On this model alone, the shares appear materially undervalued relative to that intrinsic value estimate.
Result: UNDERVALUED on this DCF model
Our Discounted Cash Flow (DCF) analysis suggests Elastic is undervalued by 53.0%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.
Approach 2: Elastic Price vs Sales
For a company like Elastic that is still focused on scaling and reinvesting, P/S is often more useful than P/E, because it compares the share price with revenue rather than profits that can be small or volatile while the business is building out.
What investors are really deciding with a valuation multiple is how much they are willing to pay for each dollar of sales, given their expectations for growth and their tolerance for risk. Higher expected growth and lower perceived risk tend to support a higher “normal” P/S ratio, while slower expected growth or higher uncertainty usually point to a lower one.
Elastic currently trades on a P/S ratio of about 4.0x, compared with the broader Software industry average of 3.50x and a peer group average of 19.66x. Simply Wall St’s Fair Ratio framework estimates a P/S of 5.53x for Elastic, based on factors such as its growth profile, profit margins, industry, market capitalization and company specific risks.
This Fair Ratio is designed to be more tailored than a simple peer or industry comparison, because it adjusts for the specific mix of growth, risk and profitability that investors are pricing in for Elastic.
Set against Elastic’s current P/S of 4.0x, the Fair Ratio of 5.53x suggests the shares screen as undervalued on this measure.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Elastic Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These let you attach a clear story about Elastic to specific assumptions for future revenue, earnings and margins, then link that story to a Fair Value you can compare with the current price on Simply Wall St’s Community page.
Each Narrative connects what you believe about Elastic’s business, such as how AI, cloud and competition might shape its results, to a set of financial forecasts and a Fair Value estimate that updates automatically when new information like earnings or news is added.
On Elastic, for example, one Narrative currently anchors on a Fair Value of about US$119.00 and another on about US$89.66. This lets you see how different investors interpret the same company in very different ways and then decide where your own view sits between those extremes.
Do you think there's more to the story for Elastic? 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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