- Investors may be wondering whether Granite Construction still offers good value after its strong run, or if most of the opportunity is already reflected in the current share price.
- The stock closed at US$118.14. It delivered a 1.7% return over the last 7 days, declined 12.8% over the last 30 days, is roughly flat year to date with a 0.4% decline, and has returns of 58.0% over 1 year, 194.0% over 3 years, and 211.5% over 5 years.
- Recent coverage has focused on Granite Construction as part of ongoing infrastructure and capital goods discussions, with attention on how the company is positioned within large construction and civil projects in the US. This context has kept investors interested in whether the current share price still reflects the potential benefits of that positioning.
- On Simply Wall St, Granite Construction holds a 5/6 valuation score. The rest of this article will compare different valuation approaches and will also introduce a more rounded way to think about value toward the end.
Find out why Granite Construction's 58.0% return over the last year is lagging behind its peers.
Approach 1: Granite Construction Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and then discounting those back to today using a required rate of return.
For Granite Construction, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $315.13 million. Based on analyst inputs for the next few years and then Simply Wall St extrapolations after that, projected Free Cash Flow reaches $581.52 million in 2035.
When all these projected cash flows are discounted back and combined, the DCF model indicates an intrinsic value of about $168.58 per share. Compared with the recent share price of $118.14, this implies the stock trades at roughly a 29.9% discount. On this DCF view, Granite Construction appears undervalued relative to the model’s estimate of intrinsic value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Granite Construction is undervalued by 29.9%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.
Approach 2: Granite Construction Price vs Earnings
For profitable companies, the P/E ratio is a useful way to relate what you pay for each share to the earnings that support that price. Investors generally accept that higher growth expectations or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually calls for a lower, more conservative multiple.
Granite Construction currently trades on a P/E of 26.63x. This sits below both the Construction industry average P/E of 34.01x and the peer group average of 31.42x. Simply Wall St’s Fair Ratio for Granite Construction is 26.62x, which represents the P/E level suggested by its earnings growth profile, industry, profit margins, market cap and risk factors.
The Fair Ratio is more tailored than a simple industry or peer comparison because it adjusts for company specific characteristics rather than assuming all firms deserve similar multiples. With Granite Construction’s actual P/E of 26.63x sitting very close to the Fair Ratio of 26.62x, the stock looks broadly in line with what this framework suggests.
Result: ABOUT RIGHT
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Upgrade Your Decision Making: Choose your Granite Construction Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as simple stories that you create about Granite Construction, where you set your own view of future revenue, earnings and margins, connect that view to a Fair Value, and then compare it with the current price on Simply Wall St’s Community page, which is used by millions of investors. This can make it easier to judge whether the stock looks attractive for you now or later.
A Narrative links what you believe is happening in Granite Construction’s business to a set of financial forecasts and then to a Fair Value that updates when new information such as news or earnings arrives. This can help you decide how the gap between Fair Value and the live share price fits your own risk and return preferences.
For example, one investor in the Community might build a more cautious Granite Construction Narrative that lines up with a Fair Value of US$132.00. Another might use a more optimistic story that supports a higher Fair Value of US$161.00. Both can then see in real time how their numbers and stories stack up against the current share price.
Do you think there's more to the story for Granite Construction? 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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