Does Capgemini’s Share Price Slide Signal Opportunity After $7B Atos Contract Loss?

If you are trying to decide whether to hold onto Capgemini or make a move, you are definitely not alone. With the stock recently closing at €123.6, it has caught the eye of investors looking for both value and stability in a tech-driven world. Over the past week, the price moved just 0.4%, but a glance at the longer-term numbers tells a much richer (and more complicated) story: the stock is down 2.4% over the last month, a steep 21.1% since the start of the year, and notably, 33.3% lower than it was a year ago. Still, over a five-year stretch, Capgemini is up 21.5%, which shows its ability to recover and deliver for patient shareholders.

It is common to wonder whether recent market turbulence and shifting investor perception have actually made Capgemini a bargain. The tech sector has faced its fair share of headwinds and evolving sentiment, and while some of Capgemini's price swings can be traced to broad market dynamics, much of the current discount may be more about bigger-picture risk perception than about changing business fundamentals.

Here is something eye-catching: Capgemini currently scores a 5 out of 6 on our valuation checklist, meaning it appears undervalued on five of the six key measures we use. This is not just a throwaway number. It is a sign there is some serious potential for upside if you look beneath the surface. Next up, we will break down these different valuation approaches to see exactly what is happening here, and hint at an even more insightful way to make sense of it all coming up at the end of this article.

Why Capgemini is lagging behind its peers

Approach 1: Capgemini Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's value. For Capgemini, this model uses the 2 Stage Free Cash Flow to Equity approach, offering a long-term look into its earning potential.

Capgemini's latest reported Free Cash Flow stands at approximately €2.16 billion. Analyst estimates suggest this figure will grow, forecasting about €2.39 billion in Free Cash Flow by 2029. Although analyst coverage provides projections up to five years out, projections beyond that are extrapolated using internal growth assumptions. Each of these cash flows is discounted back to the present to account for risk and the time value of money.

According to the DCF model, Capgemini's intrinsic fair value is estimated at €186.64 per share. Given the current market price of €123.6, the stock appears to be trading at a 33.8% discount to its calculated intrinsic value. In summary, the DCF model suggests Capgemini is significantly undervalued based on its expected future cash flows in euros.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Capgemini is undervalued by 33.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Capgemini Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used metric for valuing companies that are consistently profitable, like Capgemini. It offers a straightforward way to compare how much investors are willing to pay for a company’s earnings and helps to gauge whether a stock is attractively priced relative to its profit generation.

Growth expectations and risk play a huge role in what is considered a “normal” or “fair” PE ratio. Typically, companies with higher growth prospects or lower risk profiles justify higher PE multiples, while slower-growing or riskier businesses tend to trade at lower figures.

Capgemini’s current PE ratio stands at 13.5x. To put this in perspective, the company’s PE is below the average of its global peers, which sits at 10.9x, and well beneath the broader IT industry average of 22.2x. This already signals potentially attractive pricing, but a more tailored comparison is even better.

Enter Simply Wall St’s proprietary Fair Ratio. This Fair PE ratio, calculated at 24.5x for Capgemini, takes into account not just industry averages and peer performance, but also factors like the company’s expected earnings growth, profit margins, risk profile, and market capitalization. This makes it a far more holistic benchmark than simply matching up against peers or industry standards.

When we weigh Capgemini’s current PE of 13.5x against its Fair Ratio of 24.5x, the stock looks meaningfully undervalued on this metric alone, hinting at possible upside if the market reassesses its future outlook.

Result: UNDERVALUED

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

Upgrade Your Decision Making: Choose your Capgemini Narrative

Earlier, we mentioned there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is a way to tell the story behind the numbers, connecting your perspective about a company’s future—such as expected growth, margins, and earnings—to a financial forecast, which then generates an up-to-date fair value for the stock.

Narratives make the process simple. On Simply Wall St’s Community page (used by millions of investors), you can review or create different stories about Capgemini, each with their own assumptions and projections. This means you can see how investors who are optimistic about cloud and AI adoption might estimate a higher fair value of €214 per share, while more cautious analysts might land as low as €134. Each estimate is driven by their own expectations for Capgemini’s future performance.

Because Narratives update dynamically whenever new news or earnings data emerges, you always have a current comparison between Capgemini’s market price and its fair value according to your chosen story, making it easier than ever to decide when to buy, sell, or hold.

Do you think there's more to the story for Capgemini? Create your own Narrative to let the Community know!

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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