- Wondering whether Allegion's current share price reflects its true worth, or if the market is mispricing the stock right now.
- The shares closed at US$141.06, with returns of a 3.2% decline over 7 days, a 10.9% decline over 30 days, and a 12.3% decline year to date, set against a 12.4% gain over the past year and 47.9% over 3 years.
- Recent coverage has focused on Allegion as a steady building products business, with investors watching how its security and access solutions fit into long term spending plans. This backdrop helps frame the recent pullback as the market reassesses how much it is willing to pay for that profile.
- Allegion currently holds a valuation score of 5/6. The sections that follow will walk through how different valuation methods stack up for the stock and will also introduce a more complete way to think about value at the end of the article.
Approach 1: Allegion Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting future cash flows and then discounting them back to today using a required rate of return. It focuses on the cash that might ultimately be available to shareholders.
For Allegion, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is around $686.7 million. Analyst and extrapolated projections point to free cash flow of $856 million by 2030, with a series of annual estimates between 2026 and 2035 that are discounted back to present value in the model.
On this basis, the DCF model arrives at an estimated intrinsic value of about $144.36 per share. Against the recent share price of $141.06, this implies the stock is around 2.3% undervalued, which is a very small gap and well within the sort of margin that can be driven by sentiment or minor changes in assumptions.
Result: ABOUT RIGHT
Allegion 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: Allegion Price vs Earnings
For profitable companies, the P/E ratio is a useful quick check because it links what you pay today to the earnings the business is already generating. A higher or lower P/E can make sense depending on what investors expect for future growth and how much risk they see in those earnings. Stronger growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually calls for a lower one.
Allegion currently trades on a P/E of 18.87x. This sits close to the Building industry average P/E of 19.40x and well below the peer group average of 42.74x. Simply Wall St’s Fair Ratio for Allegion is 20.89x, which represents the P/E level that its model suggests could be reasonable given factors such as earnings growth, profit margins, industry, market cap and risk profile.
The Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for Allegion’s specific characteristics instead of assuming that all companies should trade at similar levels. Comparing the Fair Ratio of 20.89x with the actual P/E of 18.87x suggests the shares are trading below the level indicated by this metric.
Result: VALUATION BELOW FAIR RATIO ON THIS METRIC
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Upgrade Your Decision Making: Choose your Allegion Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you turn your view of Allegion into a clear story that links what you think about its business, such as demand for smart and connected security, acquisitions like ELATEC or Gatewise, or risks around nonresidential cycles and the mechanical portfolio, to your own revenue, earnings and margin assumptions. These then feed into a fair value that is constantly refreshed when new earnings, news or guidance arrives, and can be compared with the current share price to help you decide whether Allegion looks closer to the more optimistic analyst narrative with a fair value around US$200, the more cautious view around US$165, or somewhere in between on the Community page that is used by millions of investors.
Do you think there's more to the story for Allegion? 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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