Assessing Elkem After 56% Year to Date Rally and Strong Market Momentum

If you’re eyeing Elkem’s stock and wondering whether now is the right time to buy, hold, or exit, you’re in good company. Investors have watched Elkem’s story unfold with some truly eye-catching price moves, both recently and over longer stretches of time. In just the past week, the stock gained 3.7%. Looking at the past month, it has increased by 8.9%. The most notable figure is the year-to-date return, which stands at 56.0%. Even over a full year, Elkem still shows a substantial 34.6% gain. For those who have held on since five years ago, the journey has been rewarding overall, with a 60.2% return, despite a more volatile three-year stretch.

So, what is driving this upward momentum? A significant part of the recent gains is linked to broader market optimism about industrial materials as well as positive speculation regarding shifts in global demand. These factors have contributed to a noticeable change in risk perception, encouraging more investors to take a closer look at companies like Elkem.

There is also an interesting detail: despite the excitement, Elkem currently scores a 2 out of 6 on our valuation checklist, indicating it is still considered undervalued under two different approaches. This scenario presents both opportunity and debate as we examine the numbers behind the headlines. Let’s review the standard ways investors measure value and see how Elkem compares, then finish with a perspective that goes beyond just the numbers.

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

Approach 1: Elkem Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and then discounting those figures back to today. This gives investors an idea of what the business is truly worth in present terms. This approach tries to look past short-term noise and focus on what a company can generate in the long run.

For Elkem, the most recent Free Cash Flow is negative, at -1.3 Billion NOK, reflecting recent operational or investment headwinds. Projections improve quickly, with analysts estimating Free Cash Flow to turn positive and reach 284 Million NOK by 2027. After that, projections are extrapolated, with free cash flows expected to continue rising steadily over the following years and ultimately surpass 400 Million NOK by 2035, according to Simply Wall St's modeling. All these projections use NOK as the reporting and estimating currency.

When these future cash flows are added up and discounted back to today, the estimated intrinsic value for Elkem comes out to 8.59 NOK per share. Currently, however, the actual share price is over 200% higher than this calculated value. This means the DCF analysis implies the stock is substantially overvalued at the moment.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Elkem may be overvalued by 217.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Elkem Price vs Earnings (P/E)

The Price-to-Earnings (P/E) ratio is one of the most straightforward and widely used ways to value profitable companies like Elkem. It tells investors how much they are paying for each krone of earnings, making it a good starting point for assessing whether a stock looks expensive or cheap relative to its earnings power.

Growth expectations and risk both play important roles in shaping what a "normal" or "fair" P/E ratio should be. Companies with higher growth prospects or more stable earnings can reasonably trade at higher P/E ratios, while riskier or slower-growing companies often deserve a discount. This is why looking at plain multiples in isolation does not always give the full picture.

Currently, Elkem trades at a P/E ratio of 24.7x. This is in line with its Chemicals industry average of 22.7x and quite close to the average P/E of its publicly traded peers, which sits at 26.8x. However, Simply Wall St's unique "Fair Ratio" for Elkem is calculated at 44.2x. The Fair Ratio is a more holistic benchmark, because it weighs not just industry averages or competitors, but also incorporates Elkem's own earnings growth, profit margins, specific industry dynamics, company size, and risks.

By comparing the Fair Ratio (44.2x) to Elkem's actual P/E (24.7x), it becomes clear that Elkem is trading well below what would be expected if all considerations are factored in. This suggests the market may be underestimating the company’s strengths and potentially underpricing its shares.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Elkem Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. In simple terms, a Narrative is your unique story about a company; it is the perspective you bring when you interpret the numbers, estimate future revenue, and forecast earnings and margins.

Narratives link what is happening in Elkem’s business or industry to your beliefs about its financial future, and then translate those beliefs into a fair value estimate. With a Narrative, you can move past generic ratios and create an investment thesis that feels relevant and tailored to your outlook. Narratives are easy to use and accessible for anyone on Simply Wall St’s Community page, where millions of investors are already building and sharing their perspectives.

By comparing your Narrative’s fair value to Elkem’s current share price, you can get a clear signal on whether you think now is the time to buy, hold, or sell. The best part is these Narratives update dynamically as new news and earnings come in, so your outlook can evolve as the facts change. For example, some investors might build their Narrative on the most optimistic price target of NOK30.0, reflecting faith in R&D and market expansion. Others may side with the lowest target of NOK22.0, focusing on risks from global trade tensions or weak demand.

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