• If you are wondering whether PPG Industries' current share price really reflects what the business is worth, you are not alone. That is exactly what this article will tackle.
• PPG shares most recently closed at US$106.70, with returns of a 13.4% decline over the past 7 days, a 15.3% decline over 30 days, a 2.3% gain year to date, and a 5.2% decline over 1 year, alongside a 9.5% decline over 3 years and an 18.8% decline over 5 years.
• Recent coverage of PPG has focused on its position as a large coatings and materials supplier and how broader materials sector sentiment has been affecting established names like this. That context helps explain why shorter term share price moves can look quite different to the longer term record investors see today.
• Against that backdrop, PPG currently scores 5 out of 6 on Simply Wall St's valuation checks. This raises an important question about what different valuation approaches are seeing here and whether there is an even richer way to think about value that we will come back to at the end of this article.

Find out why PPG Industries's -5.2% return over the last year is lagging behind its peers.

Approach 1: PPG Industries Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today using a required rate of return. It is essentially asking what all those future dollars are worth in present terms.

For PPG Industries, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $1.27b. Analysts provide explicit free cash flow estimates out to 2029, with Simply Wall St extrapolating further to build a 10 year path, including a projected free cash flow of about $2.22b in 2035.

Pulling those projections together, the DCF model arrives at an estimated intrinsic value of US$161.05 per share. Compared with the recent share price of US$106.70, this suggests the shares trade at a 33.7% discount to this DCF estimate, which indicates the stock may be undervalued on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests PPG Industries is undervalued by 33.7%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PPG Industries.

Approach 2: PPG Industries Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of current earnings. It gives you a quick sense of how the market is weighing those earnings today, relative to other companies. Higher expected growth and lower perceived risk usually support a higher, or more generous, P/E, while lower growth expectations or higher risk tend to mean a lower, more conservative, P/E is seen as normal.

PPG Industries currently trades on a P/E of 15.2x. That sits below the Chemicals industry average of 24.31x and below the peer group average of 29.79x. Simply Wall St also calculates a proprietary “Fair Ratio” of 22.12x for PPG Industries. This Fair Ratio is designed to reflect what a more tailored P/E might look like after considering factors such as the company’s earnings growth profile, its industry, profit margins, market cap and specific risks.

Because this Fair Ratio is built around PPG Industries’ own characteristics rather than broad group averages, it can give a more company specific view than simple comparisons with peers or the wider industry. Set against the current 15.2x P/E, the 22.12x Fair Ratio suggests the shares may be undervalued on this earnings multiple view.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your PPG Industries Narrative

Earlier we mentioned that there is an even better way to think about valuation, so let us introduce you to Narratives. These are simply your story about PPG Industries linked directly to numbers like your fair value, and your estimates for future revenue, earnings and margins. All of this is built into an easy tool on Simply Wall St’s Community page that updates whenever new news or earnings arrive, compares your Fair Value with today’s Price to help you decide whether you see PPG Industries as closer to US$152.76 or US$125.30, and makes it clear how two investors can look at exactly the same company and reach different, but clearly explained, views.

Do you think there's more to the story for PPG Industries? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.