How Should Investors View Atlas Copco After Latest Earnings Beat and Share Price Recovery?

If you are wondering what to do with Atlas Copco stock right now, you are definitely not alone. The industrial equipment giant has been on a rollercoaster. After a weak start to the year, shares are up 4.2% in the past week and 8.2% over the last month, although the stock still lags its longer-term highs with a year-to-date return of -7.0% and a one-year return of -7.9%. Zoom out, though, and the three-year and five-year numbers, 47.4% and 71.9% respectively, say a lot about this company’s long-term resilience.

What is driving these latest moves? The market seems to be recalibrating its expectations in response to shifting macroeconomic signals, renewed optimism around industrial demand, and some global supply chain tailwinds. Even though these developments haven't sparked a dramatic price surge, they are giving investors fresh reasons to take another look at the stock’s potential trajectory, especially for those weighing risk versus reward in the current environment.

But is Atlas Copco undervalued? When we run it through six standard valuation checks, Atlas Copco scores 1 out of 6, suggesting only a modest case for undervaluation today. Of course, metrics like this are just a snapshot. Let’s break down these individual valuation approaches and see what they can really tell us about where Atlas Copco stands. Stay with me, because there’s an even better way to gauge value coming up at the end.

Atlas Copco scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Atlas Copco Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by forecasting its future free cash flows and then discounting them back to their present value. This approach helps investors gauge the true worth of a business relative to its current market price.

For Atlas Copco, current free cash flow (FCF) stands at SEK 30.5 billion. Analysts forecast this figure to hover around SEK 31.8 billion by 2028, with Simply Wall St extrapolating further growth for the next decade based on reasonable long-term estimates. All projections are given in Swedish Krona (SEK), as reported by the company. While analysts provide the most confidence in estimates for the next five years, numbers beyond that should be treated as illustrative and not absolute.

According to the DCF methodology, the estimated intrinsic value for Atlas Copco is SEK 136.44 per share. However, when compared to the current market price, the DCF result implies the stock is roughly 16.9% overvalued.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Atlas Copco may be overvalued by 16.9%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Atlas Copco Price vs Earnings

For profitable companies like Atlas Copco, the price-to-earnings (PE) ratio is a widely accepted valuation tool because it directly links a company’s share price to its underlying earnings performance. Investors tend to rely on PE because it helps reveal how much the market is willing to pay for each unit of current earnings, providing a clearer sense of value for established organizations consistently generating profits.

The “right” or “fair” PE ratio isn’t one-size-fits-all. It depends on a range of factors, such as the company’s expected earnings growth, how risky its business model is compared to peers, and overall market sentiment. Faster-growing or less risky firms typically command higher PE ratios, while slower growth or heightened risk tends to push that number lower.

Atlas Copco is currently trading on a PE ratio of 27.7x. Looking at the broader Machinery industry, the average PE stands at 24.4x, while direct peers trade around 24.2x. Based purely on these benchmarks, Atlas Copco is priced at a premium to both its industry and its peer group.

However, Simply Wall St’s proprietary “Fair Ratio” model offers a more nuanced assessment. This metric estimates what Atlas Copco’s PE should be based on multiple drivers like its expected earnings growth, profit margins, business risks, company size, and the unique dynamics of its industry. This goes beyond the simple peer group averages, covering key fundamentals that really matter to long-term investors.

Currently, Atlas Copco’s Fair Ratio is calculated at 28.8x, slightly above its actual PE of 27.7x. This close alignment suggests the market is pricing Atlas Copco’s shares about right, indicating they are not meaningfully overvalued or undervalued at these earnings multiples.

Result: ABOUT RIGHT

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 Atlas Copco Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. In simple terms, Narratives let you add your own story and perspective to a company’s numbers, combining your assumptions about fair value, future revenue, profit margins, and risks into one cohesive outlook.

A Narrative links what’s really happening at Atlas Copco, from expanding automation and digital services to shifting global demand, with your estimates of the company’s future performance. This approach results in a personalized, scenario-driven fair value. This isn’t just for experts; Narratives are easy to explore and build directly on Simply Wall St’s Community page, where millions of investors share and compare views.

With Narratives, you can clearly see whether your outlook suggests Atlas Copco is undervalued or overvalued by comparing your fair value to today’s price. This helps you decide if it’s time to buy, sell, or wait. In addition, Narratives dynamically reflect major news and earnings updates, so your investment story stays up-to-date as the world changes.

For example, some investors currently set Atlas Copco’s fair value at SEK210.0, betting on strong digitalization and margin gains, while others are more cautious with a SEK125.0 estimate, citing currency and geopolitical risks.

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