Does APi Group’s Strong 62% Rally in 2024 Signal More Upside Ahead?

Thinking about what to do with your APi Group shares or wondering if now is the right time to get in? You’re not alone. Investors across the board have been eyeing this stock’s incredible momentum. Just in the past year, APi Group has surged 62.3%, leaving many rivals behind, and the five-year return stands at an impressive 256.0%. Even this year, the stock is up 47.6% year-to-date, showing strength with only a few bumps along the way. Most recently, APi shares gained 2.8% over the last week, and 0.5% in the past month, continuing their upward trend despite a more cautious overall market mood.

This kind of growth always brings up big questions. Is there still room for APi Group to climb, or is all the good news priced in? Recent analyst commentary and strong long-term sector trends have shaped how investors view the stock’s risk and reward. However, when it comes to traditional valuation metrics, APi Group’s value score is just 1 out of 6, meaning it only checks one box for being undervalued based on the common approaches analysts use to screen stocks.

But numbers on a page are only part of the story. Next, we’ll unpack exactly what goes into these valuation models and what those scores really mean for investors. Stay tuned until the end for a perspective on assessing value that goes beyond the typical financial ratios.

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

Approach 1: APi Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the present value of a company by projecting how much cash it will generate in the future, then discounting those cash flows back to today. For APi Group, this involves examining both near-term analyst estimates and extending those into further years using reasonable growth assumptions.

Currently, APi Group's Free Cash Flow stands at $558.9 million. Analysts project this figure could rise to $899.95 million by 2027, with further growth continued through extrapolation for several years beyond. By 2035, forecasted free cash flow is expected to reach approximately $1.3 billion. These projections reflect a healthy upward trajectory as the company expands within the construction sector.

Based on these future cash flows and discounting them accordingly, the intrinsic value for APi Group stock is calculated at $41.29 per share. The DCF model suggests the stock trades at a 14.4% discount to this value, indicating that shares may remain undervalued at current prices.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests APi Group is undervalued by 14.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: APi Group Price vs Earnings

The Price-to-Earnings (PE) ratio is the preferred multiple for evaluating profitable companies like APi Group because it directly links the company’s market value with its bottom-line results. Investors often look to the PE ratio to gauge whether a stock’s price fairly reflects its current and expected future earnings.

However, what constitutes a "normal" or "fair" PE ratio can vary significantly depending on how fast a company is expected to grow and the level of risk attached to its earnings. Firms with rapid growth prospects or lower risk profiles often justify higher PE ratios, while slower growers or riskier businesses tend to trade at lower multiples.

APi Group currently trades at a PE ratio of 104.3x, which is notably higher than the industry average of 37.3x and the average of its peers at 40.4x. At first glance, this premium might raise eyebrows. However, Simply Wall St’s proprietary “Fair Ratio” calculation helps clarify the context. The Fair Ratio is set at 54.1x and takes into account much more than just sector averages. It factors in APi Group’s specific earnings growth forecasts, profit margins, risk considerations, market cap, and its position within the construction industry, delivering a more custom benchmark for the stock’s value.

By comparing APi Group’s current PE ratio of 104.3x to its Fair Ratio of 54.1x, the analysis suggests that the stock is trading at a substantial premium to what it should fetch based on all those relevant factors. As a result, investors should consider the stock overvalued by this metric.

Result: OVERVALUED

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 APi Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, story-driven perspective on a company. It is your view of its future prospects, where you lay out the thinking behind your own fair value calculation by connecting company fundamentals with your assumptions for future revenue, profit margins, and growth.

Narratives bring numbers to life by directly linking your story about APi Group’s business to a financial forecast and then deriving a Fair Value estimate from those assumptions. On Simply Wall St’s Community page, millions of investors are using Narratives as an easy, accessible tool to express their views, compare with others, and see how different outlooks stack up against current prices.

This approach is practical because Narratives let you see at a glance whether you would buy, hold, or sell the stock by comparing your Fair Value to the market price. Because Narratives update as soon as new events or results are released, your decision-making stays current and relevant.

For example, some investors believe recurring revenue and digital transformation will drive APi Group to a Fair Value of $41 per share, while others focusing on margin pressures and integration challenges see it closer to $32. Your Narrative can add to the conversation and help you invest with confidence.

Do you think there's more to the story for APi Group? 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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