Is Grifols a Bargain After Recent Share Price Swings?

• Wondering whether Grifols could be a bargain or a value trap? You're not alone, and the answer might surprise even seasoned investors.
• Its share price has swung sharply in recent months, dropping 6.0% over the past week and 11.2% during the last month, but still showing a 13.6% gain so far this year.
• Headlines have been buzzing around Grifols as investors react to ongoing debates over the company's balance sheet and strategic moves in the plasma sector, which have fueled both optimism and skepticism. In particular, market chatter about debt management and asset sales has added new twists to the stock’s recent trajectory.
• When we look at the numbers, Grifols scores a 4 out of 6 on our valuation checks, indicating potential value but also some reservations. We'll explore different valuation methods below, and at the end, we'll reveal an even better way to spot value in Grifols.

Find out why Grifols's 3.8% return over the last year is lagging behind its peers.

Approach 1: Grifols Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates the true worth of a stock by projecting all future cash flows a company is expected to generate and then discounting those flows back to today’s value. This approach helps investors see whether the market price fairly reflects the company's anticipated financial performance.

For Grifols, the latest twelve months of Free Cash Flow (FCF) stands at approximately €711 million. According to analysts, the company’s FCF is projected to increase each year and reach about €1.2 billion by 2029. While these forecasts are supported by analyst estimates for the next five years, longer-term projections rely on further extrapolations. All figures are measured in euros, the company’s reporting currency.

This DCF analysis gives Grifols a fair value estimate of €21.09 per share. Compared to the current trading price, this implies the stock is trading at a 49.1% discount to its projected intrinsic value. In plain terms, the model suggests Grifols is significantly undervalued right now, even after accounting for uncertainties in future growth.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Grifols is undervalued by 49.1%. Track this in your watchlist or portfolio, or discover 850 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 Grifols.

Approach 2: Grifols Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies like Grifols, as it reflects what investors are willing to pay for each euro of current earnings. A company's growth prospects and risk profile are key drivers of what constitutes a normal or fair PE ratio, with higher growth and lower risk generally justifying a higher figure.

Currently, Grifols trades at a PE ratio of 24.6x. This sits below the average PE multiple for biotechs in its industry, which is 29.4x, and is also notably lower than its peer group average of 47.6x. These comparisons suggest the market is more cautious on Grifols relative to similar companies, possibly due to its balance sheet or sector-specific uncertainties.

To provide a more tailored benchmark, Simply Wall St calculates a “Fair Ratio” for each company. Grifols’ Fair PE Ratio is 26.7x, which incorporates not just industry averages but also Grifols’ earnings outlook, risk, profit margins, and market cap. This is an improvement over a simple peer comparison, as it offers a more precise valuation reference based on the company’s unique profile and future prospects.

With Grifols’ actual PE of 24.6x just slightly under its Fair Ratio of 26.7x, the stock currently appears to be trading at about the right level based on earnings-based metrics.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1407 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Grifols Narrative

Earlier we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple tool that allows you to connect the numbers to the story you believe about a company like Grifols. You can consider what future you expect for its revenue, margins, and growth, and what you believe is a fair price based on those expectations.

Narratives work by linking your view of the company's story, whether that is optimism about new product launches or caution about high debt, to a detailed financial forecast, which then leads to a fair value tailored to your outlook. This approach makes investing intuitive and accessible, and you can easily try it out with millions of investors on the Community page at Simply Wall St.

With Narratives, you can quickly see whether your fair value is above or below the current price, helping you decide whether it is time to buy or sell. The best part is that these Narratives update automatically whenever new news, earnings reports, or company events come in, keeping your view up to date without extra effort.

For example, right now some investors see strong global plasma demand and innovation leading to a fair value of €24.0 per share, while others focus on risks like high debt and predict just €9.0. This shows there is more than one story behind every stock price.

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