Is Sterling Infrastructure Fairly Priced After Its 99% Surge and Major Contract Wins?

• Wondering if Sterling Infrastructure is still a bargain after its explosive run? You are not alone, and digging into the numbers reveals some surprises most investors miss.
• This year alone, the stock has soared 99.2%, capping off an eye-popping 5-year gain of 1930.2%. Momentum has cooled a bit, with a -12.2% dip over the last week.
• Recent headlines have spotlighted Sterling's wins in major infrastructure contracts and ongoing government investments in construction. These factors have fueled optimism even as the broader market faces volatility. Investors are discussing the company’s ability to win big projects and maintain growth despite economic uncertainties.
• Sterling Infrastructure currently scores a 3 out of 6 on our value checks, meaning there is a mix of strengths and weaknesses according to conventional metrics. Before breaking down those traditional valuation approaches, stick around for what might be a smarter way to understand what this company is really worth.

Sterling Infrastructure delivered 76.4% returns over the last year. See how this stacks up to the rest of the Construction industry.

Approach 1: Sterling Infrastructure Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is truly worth today by projecting its future cash flows and discounting them back to their present value. This approach helps investors judge whether the current stock price offers good value compared to what the business might generate in the future.

Sterling Infrastructure reported Free Cash Flow (FCF) of $353.7 million in the last twelve months. Analysts forecast growth out to 2027, expecting FCF to reach $455.7 million by year-end. Beyond this point, projections up to 2035 suggest steady increases, although these future figures rely on reasonable extrapolation rather than concrete analyst estimates.

The DCF model arrives at an intrinsic value of $315.15 per share. Compared with the market price, this suggests the stock is currently 6.0% overvalued.

Result: ABOUT RIGHT

Sterling Infrastructure 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 Sterling Infrastructure.

Approach 2: Sterling Infrastructure Price vs Earnings (PE)

For profitable companies like Sterling Infrastructure, the Price-to-Earnings (PE) ratio is a commonly used gauge of valuation. This metric reflects what investors are willing to pay for each dollar of a company’s earnings, making it a straightforward way to compare companies within the same industry.

Growth expectations and risk play a big role in determining whether a company’s PE ratio is high or low compared to peers. Companies with faster expected earnings growth and lower perceived risk tend to command higher “normal” or “fair” PE ratios. In contrast, slower or less predictable growth typically leads to a lower multiple.

Sterling Infrastructure trades at a PE ratio of 32.5x, which is nearly in line with the Construction industry average of 32.7x and a bit above the peer average of 28.0x. However, these benchmarks do not tell the whole story because they can miss important nuances around company fundamentals.

Simply Wall St’s “Fair Ratio” offers a more tailored yardstick by factoring in Sterling’s earnings growth, profit margins, risk profile, industry dynamics, and market cap. This provides a more realistic benchmark than a simple industry average or peer group comparison. For Sterling, the proprietary Fair PE ratio is calculated at 37.0x, which is higher than the company’s current multiple.

With Sterling’s current PE below its tailored Fair Ratio, the stock appears to be about right relative to its fundamentals and prospects.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Sterling Infrastructure Narrative

Earlier we mentioned there's an even better way to understand valuation, so let's introduce you to Narratives. Narratives empower you to look beyond simple numbers by linking the company's story, your expectations for its future (like revenue, earnings, and profit margins), and the resulting fair value, all in one easy and flexible approach.

A Narrative is a personal investment thesis: your own story about why Sterling Infrastructure is valuable and what you believe about its prospects. It connects your unique assumptions to a fair value estimate. On Simply Wall St's Community page, millions of investors can quickly build, share, and update their Narratives, making it an accessible and dynamic tool to inform buy and sell decisions.

As new information comes in, such as earnings reports or major news, Narratives are updated automatically, helping you keep your investment case current and relevant. By comparing your Narrative-based fair value to the live share price, you always know if Sterling Infrastructure fits your strategy.

For instance, one investor who expects sustained backlog growth, successful acquisitions, and ongoing industry tailwinds might arrive at a fair value of $390 per share. Another, focusing on margin risks and cyclical pressures, might justify a fair value closer to $254. This gives you the flexibility to craft your own view and make decisions accordingly.

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