Does Zurn Elkay Still Offer Value After Climbing Nearly 30% in the Past Year?

Thinking about what to do with Zurn Elkay Water Solutions stock? You are not alone. Investors have watched this water solutions company steadily climb, with shares up 4.9% in the last 30 days and a whopping 29.9% over the past year. The longer-term numbers are even more eye-catching, showing a return of 96.6% over three years and a stunning 217.9% run across five years. After a quieter week, with the stock up just 0.1%, some might wonder if the stock is catching its breath for another sprint or if it is finally time for a pause.

Much of this growth has been supported by ongoing demand in the water solutions sector, combined with wider market confidence in infrastructure investments. While there have not been any headline-grabbing announcements lately, broader trends in water sustainability and government infrastructure initiatives have helped keep investor optimism elevated.

But what about valuation? It is one thing to enjoy strong momentum, but another to know if the price is justified. According to our analysis, Zurn Elkay scores a 0 on our value checklist, meaning it is considered undervalued in 0 out of 6 key criteria that investors watch. That does not tell the whole story though, and there are several ways to judge a stock's value beyond just a simple score.

Next, we will break down the different valuation methods to see how Zurn Elkay measures up. Be sure to read until the end, where we will suggest a potentially better way to think about valuation altogether.

Zurn Elkay Water Solutions scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Zurn Elkay Water Solutions Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and discounting them back to today's dollars. This method helps investors gauge whether a stock's current price reflects its long-term potential.

For Zurn Elkay Water Solutions, recent financials show Free Cash Flow at $286.7 Million. Over the coming years, analysts expect this figure to grow, with projections rising to $404 Million by the end of 2029. It is important to note that analyst estimates cover only the next five years. Expectations beyond that are extrapolated based on trends. By 2035, the model suggests free cash flow could reach nearly $532 Million, assuming steady growth rates.

• Current Free Cash Flow: $286.7 Million
• Projected 2029 Free Cash Flow: $404 Million
• DCF Fair Value Estimate: $45.27 per share
• Implied Overvaluation: 3.5%

Right now, Zurn Elkay's share price sits about 3.5% above this intrinsic value. The model concludes the stock is just slightly overvalued at present levels.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Zurn Elkay Water Solutions's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Zurn Elkay Water Solutions Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like Zurn Elkay Water Solutions because it connects the company's market value directly to its actual earnings. This makes it easier for investors to gauge what they are paying compared to the company’s profit-generating power.

What is considered a "normal" or "fair" PE ratio depends on several factors, most notably expected earnings growth and risk. Companies with higher projected growth rates tend to trade at higher PE multiples, while those with more uncertainty or sector-specific risks usually have lower multiples as investors demand a discount.

Currently, Zurn Elkay trades at a PE ratio of 45.98x, which is well above both the Building industry average of 22.37x and the peer average of 33.03x. On the surface, this might suggest that the stock is expensive relative to its competitors and the broader sector. However, comparisons based purely on industry or peer levels can overlook nuances like growth potential, margins, and the company's size.

This is where Simply Wall St's proprietary "Fair Ratio" comes in. The Fair Ratio estimates the multiple Zurn Elkay deserves by factoring in elements beyond the basics, such as earnings growth, industry context, profit margins, company size, and risks unique to its business. By blending these ingredients, it aims to give a more accurate sense for what investors should pay right now.

Zurn Elkay’s Fair Ratio is calculated at 23.52x. With the actual PE at 45.98x, this indicates the stock is trading at a considerable premium to its fair value, even when accounting for the company's strengths and growth prospects. The gap is large enough to warrant caution, implying the shares are currently overvalued by this measure.

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 Zurn Elkay Water Solutions Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a story you create about a company that connects your perspective on its business, industry changes, and potential with actual financial forecasts and a calculation of fair value.

Narratives are both simple and powerful. Instead of focusing on one number or metric, you build your own view by estimating future revenue, profit margins, and fair price based on how you expect the company's story to unfold. On Simply Wall St's Community page, you can easily author, discover, and edit Narratives using tools available to millions of other investors.

With Narratives, decision-making becomes clearer as you compare your calculated Fair Value to the current share price, helping you judge whether to buy, hold, or sell. These Narratives automatically update when major news or earnings are released, ensuring your insights reflect the latest information.

For example, with Zurn Elkay Water Solutions, one Narrative might project rapid earnings growth and set a Fair Value as high as $50.0 per share, assuming successful regulatory tailwinds and technology adoption. A more cautious view focuses on risks and calculates a Fair Value as low as $41.0 per share, showing how different investors’ stories lead to different conclusions.

Do you think there's more to the story for Zurn Elkay Water Solutions? 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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