Spark New Zealand (NZSE:SPK): Assessing Valuation After Strategic Transformation and Launch of SPK-30 Plan

Spark New Zealand (NZSE:SPK) is pivoting toward its roots and unveiling a new five-year plan called SPK-30 after selling off non-core businesses. The company is focusing on core connectivity, ongoing partnerships, and fresh investments in AI.

See our latest analysis for Spark New Zealand.

Despite Spark’s bold reset and introduction of its SPK-30 strategy, sentiment around the stock remains cautious, with a 1-year share price return of -22.37% and a 1-year total shareholder return at -14.52%. While these numbers reflect pressure on the share price, especially after successive business divestments, long-term holders have seen even steeper declines. This suggests momentum is still fading and the market is waiting for evidence that the new strategy delivers results.

If Spark’s strategic overhaul has you thinking about what else could be on your radar, it’s a great moment to broaden your investing horizons and discover fast growing stocks with high insider ownership

With Spark’s shares trading below analyst price targets and its transformation plan just getting underway, investors are left to wonder: Is Spark undervalued at current levels, or is the market already pricing in future growth?

Price-to-Earnings of 17.2x: Is it justified?

At a price-to-earnings (P/E) ratio of 17.2x and a last close price of NZ$2.29, Spark New Zealand sits above the global telecom industry average P/E of 16x. This signals that, at current levels, the market is pricing Spark more expensively than its global telecom peers.

The P/E ratio shows how much investors are willing to pay today for each dollar of Spark’s reported earnings. For established companies like Spark, trading on a higher than average P/E often reflects expectations of steady performance, premium positioning, or a more defensive earnings profile when compared to pure growth plays.

However, this premium is not supported by Spark's financial trends. Spark’s earnings growth outlook trails the market, its historic profit margins are lower than last year, and its return on equity is below the 20% benchmark often seen as a sign of high financial quality. Compared to its peers’ average P/E of 67.8x, Spark looks significantly cheaper. However, that peer average may be skewed by outliers. Against the global industry benchmark, Spark’s higher P/E could be hard to justify unless its strategic reset quickly boosts profitability.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 17.2x (OVERVALUED)

However, persistent negative returns and slow revenue growth could undermine the optimistic outlook, particularly if Spark’s new strategy does not deliver meaningful improvement.

Find out about the key risks to this Spark New Zealand narrative.

Another View: Discounted Cash Flow Perspective

Looking at Spark New Zealand through the lens of our DCF model, the picture shifts. The SWS DCF model estimates fair value at NZ$2.84, while the current share price is NZ$2.29, nearly 20% below this fair value. This suggests the stock could be undervalued by the market. However, does this signal a real opportunity, or is caution still warranted?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Spark New Zealand for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 870 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Spark New Zealand Narrative

If you have a different perspective, or enjoy drawing your own conclusions from the numbers, you can create your own investment narrative quickly and easily using Do it your way

A great starting point for your Spark New Zealand research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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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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