Assessing Capgemini’s Valuation After AI Consulting Push and 9.4% Share Price Rise

• If you are wondering whether Capgemini at around €147.60 is a bargain hiding in plain sight or a stock that has already had its moment, you are not alone.
• Over the last month the share price has climbed 9.4%, including a 2.1% gain in the past week, even though it is still down 5.8% year to date and about 3.2% over the last year.
• Recent headlines have focused on Capgemini doubling down on AI driven consulting and cloud transformation deals, alongside expanding partnerships with hyperscalers to support large digital overhauls for European corporates. At the same time, management has been emphasizing operational efficiency and selective hiring, which helps explain why the market has started to reassess the risk reward profile, despite a still cautious macro backdrop.
• On our framework Capgemini scores a 5/6 valuation score, meaning it screens as undervalued on five of six checks. Next we will break down what those checks actually say about the stock and hint at a more powerful way to think about valuation that we will come back to at the end.

Find out why Capgemini's -3.2% return over the last year is lagging behind its peers.

Approach 1: Capgemini Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, DCF, model estimates what a company is worth by projecting the cash it can generate in the future and discounting those cash flows back to today in € terms. For Capgemini, the 2 Stage Free Cash Flow to Equity model starts from last twelve months free cash flow of about €2.16 billion and uses analyst forecasts for the next few years, then extrapolates further growth.

Analysts see free cash flow rising from roughly €2.22 billion in 2026 to about €2.61 billion by 2029. After that, growth assumptions gradually slow, taking projected FCF to around €3.15 billion by 2035. Simply Wall St converts this stream of future cash flows into today’s money, arriving at an estimated intrinsic value of about €209.39 per share.

Compared with the recent share price of roughly €147.60, the DCF implies Capgemini is trading at a 29.5% discount to its estimated fair value. This indicates the market may not be fully pricing in its future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Capgemini is undervalued by 29.5%. Track this in your watchlist or portfolio, or discover 907 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 Capgemini.

Approach 2: Capgemini Price vs Earnings

For profitable companies like Capgemini, the price to earnings ratio, or PE, is a useful way to judge value because it links what investors pay today to the profits the business is already generating. In broad terms, higher expected growth and lower perceived risk justify a higher PE, while slower growth or greater uncertainty usually demand a lower, more conservative multiple.

Capgemini currently trades on a PE of about 16.1x, which is slightly below both its IT industry average of roughly 21.6x and the peer group average of around 16.5x. Simply Wall St also calculates a Fair Ratio of about 24.5x for Capgemini, a proprietary estimate of what its PE should be given its earnings growth outlook, profit margins, industry, market cap and risk profile. This Fair Ratio is more tailored than a simple peer or sector comparison because it adjusts for Capgemini specific characteristics instead of assuming all IT stocks deserve the same multiple.

Since the Fair Ratio of 24.5x sits meaningfully above the current 16.1x, the PE perspective suggests Capgemini shares are still pricing in relatively modest expectations.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1448 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Capgemini Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This is an easy tool on Simply Wall St’s Community page that lets you describe the story you believe about a company and link it to your own forecast for revenue, earnings, margins and, ultimately, a fair value. You can then compare that fair value to the current share price to inform your decision on whether the stock suits your investment approach. The whole Narrative automatically updates as new news or earnings arrive.

For Capgemini, for example, one investor might build a bullish Narrative around accelerating AI partnerships, sovereign cloud contracts and margin expansion, and use that to support a fair value closer to the top of recent analyst targets near €214. Another investor might instead focus on macro risk, slower revenue growth and margin pressure, and use that view to arrive at a more cautious fair value nearer the low end around €134. Narratives helps both investors see clearly how their story, numbers and valuation connect, and how their expectations differ from the market price today.

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