Assessing Tennant’s Value After Automation Investment and Double-Digit Share Decline

• Curious whether Tennant stock is a truly undervalued opportunity hiding in plain sight? You’re not alone. Let’s dig into what the numbers and broader trends really say about its value.
• After climbing 2.0% this past week, Tennant’s shares have still slipped 8.7% over the last month and are down 16.0% in the past year. This comes despite a steady gain of 18.3% over three years and 12.7% over five years.
• Recent headlines have focused on Tennant’s strategic investment in automation technologies and expanded distribution partnerships. Both of these areas are sparking new conversations about the company's growth outlook. These moves appear to be shifting market sentiment and could be key to understanding why the stock price has moved recently.
• Currently, Tennant scores a 6/6 on our valuation checks, suggesting the stock looks undervalued based on several common approaches. A closer look at these methods, along with an even more insightful perspective, is coming up soon.

Find out why Tennant's -16.0% return over the last year is lagging behind its peers.

Approach 1: Tennant Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and then discounting them back to today’s value. This approach helps investors understand what a company’s shares may truly be worth based on expected earning power over time.

Tennant’s current Free Cash Flow (FCF) stands at $65.5 Million. Analyst estimates extend out five years, after which projections are extrapolated. By 2029, FCF is forecasted to reach $153 Million, with cash flows expected to continue growing at a modest annual pace for years beyond. The DCF model used here, a two-stage Free Cash Flow to Equity method, incorporates these projections and discounts them to today’s dollars.

Applying this approach results in an intrinsic value for Tennant of $138.49 per share. With Tennant currently trading at a level that represents a 47.2% discount to this valuation, the DCF analysis suggests the stock is substantially undervalued at the moment.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Tennant is undervalued by 47.2%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

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

Approach 2: Tennant Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like Tennant because it shows how much investors are willing to pay for each dollar of a company's earnings. It is especially useful for companies with a strong track record of profitability, as it puts the share price in context with the actual earnings generated by the business.

The "right" or "fair" PE ratio depends on factors like a company's expected earnings growth, its risk profile, and overall stability. Companies with higher growth prospects or lower risk tend to command higher PE multiples, as investors are willing to pay a premium for future potential and reliability.

Currently, Tennant trades at a PE ratio of 24.2x. This is closely aligned with the broader Machinery industry average of 24.9x and is well below the peer group average of 51.1x. While these benchmarks are helpful for context, they do not account for all company-specific factors that influence value.

Simply Wall St’s proprietary “Fair Ratio” for Tennant is 29.8x. This figure takes into account the company’s expected growth, profit margins, risks, market capitalization, and unique industry dynamics. It provides a tailored benchmark beyond industry and peer comparisons. Because it integrates these multiple factors, the Fair Ratio gives a more holistic and individualized sense of what Tennant’s valuation should be.

With Tennant’s current PE ratio sitting below its Fair Ratio by more than 0.10, the analysis indicates that the stock looks undervalued based on its earnings potential and overall fundamentals.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tennant Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own story about a company, built on the numbers you believe in: your assumptions for fair value, expected revenue, earnings, and profit margins.

Narratives make investing personal and practical, connecting what you think will happen with what the business is actually doing, and producing a fair value you can act on. This approach goes beyond static models. It links your view of Tennant’s growth drivers or risks directly to forecasted numbers and a calculated fair value, providing a living, dynamic tool for investment decisions.

Simply Wall St’s Narratives are available to anyone through the Community page, and are already used by millions of investors to track their logic and adjust as the story changes. Narratives are automatically updated as new earnings, company news, or industry shifts happen, helping you know if your buy or sell thesis still stands by comparing your Fair Value to the current market price.

For example, recent Narratives about Tennant show one investor believing that automation and sustainability will push profits higher, supporting a $125 price target. Another is more cautious about international headwinds and expects just $93. It's your call which story you trust most.

Do you think there's more to the story for Tennant? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com