Is Dana’s Rally Justified After Electric Vehicle Contract Wins and 140% Share Surge?

• Curious if Dana’s latest rally means it is fairly valued or if there is still room for upside? Let’s break down what is driving the stock’s current momentum.
• Dana’s shares have surged an impressive 72.8% year-to-date and soared 140.8% over the past year, even after a recent 7.7% dip in the last week.
• This recent share price surge has been accompanied by increasing market optimism after Dana secured new supply contracts and expanded its presence in the electric vehicle components market. Investors seemed to take these developments as a sign of long-term growth prospects, despite short-term price volatility.
• Right now, Dana scores a 1 out of 6 on our valuation checks, which makes its true value a bit more complicated to pin down than a quick glance might suggest. We will dig into what that score means by looking at different valuation methods, and highlight a perspective at the end that could reshape how you think about value altogether.

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

Approach 1: Dana Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its expected future cash flows and then discounting these figures back to their value in today's dollars. This helps investors judge whether the market's current valuation reflects the company's long-term earning potential.

For Dana, DCF analysis begins with last year's Free Cash Flow, which totaled $5.29 million. Analysts have forecasted strong growth in future cash flows, estimating that by 2028, Dana's Free Cash Flow will reach $234.1 million. Beyond the five-year analyst coverage, projections are extrapolated based on reasonable assumptions, indicating continued but moderated growth over the next decade.

Bringing these future amounts back to their present value, the model calculates Dana's intrinsic value at $19.08 per share. When compared to the current market price, this suggests the stock is trading at a 2.0% premium to its fair value.

Overall, Dana's current share price is closely aligned with what the DCF model indicates as its intrinsic value. Investors looking for a significant bargain may want to stay patient, while those interested in stable long-term potential could see this as reasonable pricing.

Result: ABOUT RIGHT

Dana is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

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

Approach 2: Dana Price vs Earnings

The Price-to-Earnings (PE) ratio is widely recognized as a reliable gauge for valuing profitable companies like Dana. It directly links a company’s share price to its actual earnings, making it a useful shorthand for how much investors are willing to pay today for a dollar of future profits.

What qualifies as a “good” or “fair” PE ratio, however, can vary. Higher PE ratios are often justified for companies with faster expected earnings growth, industry leadership, or lower perceived risks. Conversely, slower-growing or riskier businesses typically command lower multiples. Comparing Dana's PE to these reference points can offer important clues about market expectations and sentiment.

Currently, Dana trades at a PE ratio of 35x, which is well above both the Auto Components industry average of 22x and the average of its direct peers at roughly 14x. At first glance, this might seem expensive, but those benchmarks do not consider all the variables unique to Dana.

To get a fuller picture, we introduce the Simply Wall St “Fair Ratio.” This proprietary metric factors in Dana’s specific growth prospects, profit margins, market risks, size, and industry context to calculate what is considered the most reasonable multiple. For Dana, the Fair Ratio comes to 27.5x, which is higher than its peers but lower than its current market PE.

Because the Fair Ratio takes into account far more than generic averages, it provides a more meaningful view of whether Dana is being priced appropriately, given its outlook and risks. Dana’s PE of 35x is notably higher than its Fair Ratio of 27.5x, indicating a stock that is likely priced for strong earnings growth or already reflecting much of its positive outlook.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Dana Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your investment story: it weaves your view on Dana’s future, such as revenue growth, profit margins, and risks, into a set of financial forecasts, helping you establish your own fair value for the stock.

Unlike generic models or ratios, Narratives let you tie Dana’s business direction and real-world changes to the numbers. Your perspective drives your valuation instead of one-size-fits-all metrics. On Simply Wall St’s Community page, millions of investors can easily access, create, or review Narratives. They are designed to make this strategic process simple and approachable for anyone.

Here’s how it works: Narratives connect your forecasts to a fair value, which is then compared to Dana's current share price. This makes it straightforward to see if the stock is a buy, hold, or sell, particularly as Narratives are updated dynamically whenever new financial results or major news break.

For Dana, one Narrative might highlight rising margins and disciplined share buybacks to justify a bullish fair value estimate of $26.00. Another may focus on industry risks and weak revenue trends, resulting in a much more cautious value of $18.00.

Do you think there's more to the story for Dana? Head over to our Community to see what others are saying!

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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