Atlas Copco (OM:ATCO A): Assessing Valuation After Q3 Earnings Decline

Atlas Copco (OM:ATCO A) just reported its third-quarter earnings, revealing that both sales and net income dipped compared to the previous year. These latest results are drawing added interest from investors who are tracking the company’s financial momentum.

See our latest analysis for Atlas Copco.

Even with the dip in quarterly earnings, Atlas Copco's recent 30-day share price return of 6.6% and a 9.3% gain over the last 90 days hint that investors see potential for a rebound as momentum builds again. While the year-to-date performance is still in the red, the longer-term picture remains strong thanks to a five-year total shareholder return of 85%.

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With shares climbing despite recent profit declines, investors are left to ask whether Atlas Copco is undervalued with upside ahead or if the market is already anticipating a recovery in its future growth prospects.

Most Popular Narrative: 4.6% Undervalued

Atlas Copco’s narrative fair value sits slightly above the last close, suggesting investors may have just a bit more room to run. While the stock has recently recovered, the narrative highlights several key drivers supporting future potential.

The expanding, high-margin service and aftermarket business continues to grow robustly across business areas, increasing recurring revenue streams and helping to stabilize and lift group operating margins even during periods of volatility in equipment orders. Successful execution of restructuring programs and ongoing cost optimization in areas such as Vacuum Technique are already lifting margins and are expected to further improve profitability, especially as revenue growth resumes in core segments.

Read the complete narrative.

Want to know what’s fueling that steady upward curve? The most intriguing part of this narrative is the bold expectations for both profit margins and sustained earnings growth. There is a surprising quantitative leap that analysts are factoring into their valuation. Dive in to see which assumptions are tipping the scale and why the market’s next move could be significant.

Result: Fair Value of $175.06 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent currency headwinds or prolonged softness in industrial investment could present significant challenges to the upbeat outlook that analysts are projecting for Atlas Copco.

Find out about the key risks to this Atlas Copco narrative.

Another View: Discounted Cash Flow Tells a Different Story

Looking at Atlas Copco through the lens of the SWS DCF model, a different perspective emerges. Our DCF estimate pegs fair value at SEK136.39, meaning the shares are currently trading well above this level. This suggests less upside and more valuation risk if future growth does not meet expectations. Are investors putting too much faith in robust earnings forecasts?

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 Atlas Copco 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 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 Atlas Copco Narrative

If you see the data from a different angle or want to investigate your own ideas, you can craft your own Atlas Copco narrative in just a few minutes. Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Atlas Copco.

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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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