Assessing BASF Shares After New Sustainability Partnerships and 11.6% Price Gain

• Wondering whether BASF is a hidden bargain or just treading water? If clarity around value is what you are after, you are in the right place.
• BASF’s share price has not been stagnant, returning 3.5% over the past week and 11.6% in the last year. This suggests renewed investor optimism or changing market sentiment.
• Major headlines have kept the spotlight on BASF recently, with reports highlighting the company’s strategic sustainability initiatives and new partnerships in green chemistry. These developments have contributed to shifting perceptions about BASF’s long-term growth prospects.
• On our core valuation checks, BASF scores 2 out of 6, meaning it appears undervalued in just two areas. Next, we will break down the traditional ways of valuing BASF. There is an even more insightful approach coming up at the end of the article.

BASF scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: BASF Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s true worth by projecting its future cash flows and discounting them back to today’s value. This approach helps investors understand what BASF could be worth based on the cash it is expected to generate in the years ahead.

For BASF, the current Free Cash Flow (FCF) over the last twelve months stands at €163.9 million. According to analyst estimates, annual FCF is forecasted to grow significantly, reaching €2.26 billion by 2026 and €3.34 billion by 2029. These forecasts draw from both analyst projections for the coming five years and further extrapolation by Simply Wall St for the next decade.

Running these numbers through the DCF model gives an estimated intrinsic value for BASF of €87.04 per share. Compared to the current market price, this suggests the stock is trading at a 48.7% discount. This indicates that BASF is significantly undervalued according to this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests BASF is undervalued by 48.7%. Track this in your watchlist or portfolio, or discover 927 more undervalued stocks based on cash flows.

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

Approach 2: BASF Price vs Earnings

The Price-to-Earnings (PE) ratio is commonly used to value profitable companies like BASF, as it reflects how much investors are willing to pay for each euro of earnings. When a business is consistently generating profits, its PE ratio can offer a straightforward snapshot of market expectations relative to actual performance.

Growth expectations and perceived risk play key roles in determining what constitutes a fair or normal PE ratio. Companies with high earnings growth or lower risk tend to have higher PE ratios, while those facing uncertainties or slower growth typically trade at lower multiples.

BASF currently trades at a PE ratio of 128.5x. This is notably higher than both the peer average of 30.9x and the chemicals industry average of 21.0x. Even when considering the company's unique characteristics, this premium stands out.

Simply Wall St’s proprietary Fair Ratio for BASF is 34.4x. This Fair Ratio is more insightful than a simple comparison to industry averages or peers because it incorporates factors like projected earnings growth, profit margins, market cap, and company-specific risks. By taking these into account, the Fair Ratio aims to present a more accurate reference point for valuation.

When comparing BASF’s current PE of 128.5x to its Fair Ratio of 34.4x, the stock appears significantly overvalued on this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BASF Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a powerful framework that lets you add your perspective, a story about what you believe will drive a company’s future, behind the numbers. Instead of just sticking to formulas or consensus, Narratives connect the facts you see (like assumptions about future revenue, profit margins, or industry trends) to realistic financial forecasts, which then link directly to your own idea of fair value.

On Simply Wall St’s Community page, Narratives are used by millions of investors to make the decision process clearer and simpler: you see how your fair value compares to the current market price, helping you decide when to act. Every Narrative updates live whenever there is new news, company results, or analyst changes. This gives you a living, breathing view of how the story evolves over time.

Take BASF for example: some investors are optimistic that recent divestments and growth in agricultural technology will propel strong earnings, so their Narrative shows a higher fair value. Others, focusing on slow margin improvements and global headwinds, choose more cautious forecasts and see a lower fair value. Ultimately, Narratives let you invest according to your informed perspective, backed up by the latest data.

Do you think there's more to the story for BASF? 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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