- For investors wondering whether Guidewire Software at around US$155 still offers value or if most of the upside is already reflected in the price, this article walks through that question using multiple valuation lenses.
- The stock has recently been volatile, with a 21.9% gain over the last 30 days, a 3.8% decline over the past week, and returns of 21.2% decline over 1 year compared with gains of 103.5% over 3 years and 52.3% over 5 years.
- These mixed return periods suggest shifting views about what the business is worth and what level of risk investors are comfortable taking on. Recent coverage has focused on how the current share price lines up with long term expectations and whether the earlier multi year gains still justify today’s valuation.
- Guidewire Software currently scores 2 out of 6 on our valuation checks. The next sections will break down what traditional models say about that score and then point to an even more complete way to think about valuation at the end of the article.
Guidewire Software scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Guidewire Software Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model looks at the cash Guidewire Software is expected to generate in the future, then discounts those cash flows back into today’s dollars to estimate what the business could be worth now.
Guidewire’s latest twelve month Free Cash Flow stands at about $295.9 million. Using a 2 Stage Free Cash Flow to Equity model, analysts and extrapolated estimates project Free Cash Flow reaching about $1,387.1 million in 2035, with interim years such as 2026 and 2030 at $331.8 million and $860.2 million respectively. Simply Wall St uses analyst forecasts for the earlier years and then extends those trends beyond the explicit forecast period.
When all those projected cash flows are discounted back, the DCF model arrives at an estimated intrinsic value of about $203.59 per share. Compared with the current share price of around $155, this implies the stock is trading at a 23.6% discount to that DCF estimate, which points to a material gap between price and this particular valuation output.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Guidewire Software is undervalued by 23.6%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.
Approach 2: Guidewire Software Price vs Earnings
For profitable companies, the P/E ratio is a useful way to think about value because it directly links what you pay for each share to the earnings that support that share. A higher P/E can sometimes reflect stronger growth expectations or lower perceived risk, while a lower P/E can point to more muted growth expectations or higher perceived risk.
Guidewire Software currently trades on a P/E of about 69.6x. That sits above both the broader Software industry average P/E of roughly 29.4x and a peer group average of about 47.8x. On the surface, that gap suggests investors are willing to pay more for each dollar of Guidewire’s earnings than for many other software names.
Simply Wall St’s Fair Ratio for Guidewire is 30.7x. This is a proprietary estimate of what a P/E could look like given the company’s earnings growth profile, industry, profit margins, market value and risk factors. Because it ties the multiple to Guidewire’s own fundamentals rather than only to broad peer or industry averages, it can offer a more tailored reference point. Comparing the Fair Ratio of 30.7x with the current P/E of 69.6x indicates the shares are pricing in more than this model suggests.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Guidewire Software Narrative
Earlier it was mentioned that there is an even better way to think about valuation. On Simply Wall St that means using Narratives, which let you attach a clear story about Guidewire Software to hard numbers like your assumed fair value, revenue, earnings and margin paths. You can then see how that story stacks up against the current price on the Community page used by millions of investors. Each Narrative turns a view such as a fair value near the higher end of analyst targets around US$305 or closer to the lower end near US$160 into a full forecast that is automatically refreshed when new earnings, news or guidance arrive. This allows you to quickly see whether, for your chosen story, Guidewire looks comfortably below, roughly in line with, or well above your fair value and decide if that makes it a potential buy, hold or sell candidate for your portfolio.
Do you think there's more to the story for Guidewire Software? 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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