Is Interface (TILE) Still Attractive After Recent Share Price Pullback And DCF Upside?

• If you are wondering whether Interface is still good value after a strong run, this article will walk through what the current share price might be implying about the company.
• The stock closed at US$28.14, with a 10.6% decline over the last 7 days and an 18.7% decline over the last 30 days, while the 1 year return sits at 54.5% and the 5 year return at 102.5%.
• Recent news coverage around Interface has largely focused on its position in commercial flooring and modular carpet, along with how management is positioning the business in key end markets. This helps frame how investors may be reacting to the share price moves and, together, this context gives useful background for thinking about whether the current valuation still lines up with the company’s profile.
• On our checks, Interface currently has a valuation score of 6 out of 6. Next we will look at how different valuation approaches line up with that result, before finishing with a simple way to get an even clearer view of what the market is pricing in.

Interface delivered 54.5% returns over the last year. See how this stacks up to the rest of the Commercial Services industry.

Approach 1: Interface Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today’s value. It is essentially asking what those future dollars are worth in today’s terms.

For Interface, the model uses a 2 Stage Free Cash Flow to Equity approach, starting from last twelve months free cash flow of about $130.9 million. Simply Wall St extends analyst inputs to build annual free cash flow projections, which in this case run out to 2035. By 2035, projected free cash flow is $209.1 million, with each year’s figure discounted back to reflect the time value of money.

Adding these discounted cash flows together and including a terminal value gives an estimated intrinsic value of $71.06 per share. When this is compared with the recent share price of $28.14, the model implies Interface is trading at a 60.4% discount to this DCF estimate. This indicates a wide valuation gap if the cash flow assumptions hold.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Interface is undervalued by 60.4%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

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

Approach 2: Interface Price vs Earnings

For a profitable company like Interface, the P/E ratio is a useful way to relate what you pay for each share to the earnings that each share currently generates. It gives you a quick sense of how many dollars of price the market is placing on one dollar of earnings.

What counts as a “normal” P/E depends on how investors view a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth expectations or higher risk usually point to a lower P/E.

Interface currently trades on a P/E of 14.05x, compared with the Commercial Services industry average of about 24.57x and a peer group average of 24.91x. Simply Wall St also calculates a Fair Ratio of 17.03x for Interface. This Fair Ratio is a proprietary estimate of what the P/E might be, given factors such as the company’s earnings growth profile, industry, profit margin, market cap and risk characteristics.

Because the Fair Ratio is tailored to Interface, it can be more informative than a simple comparison with broad industry or peer averages. Against this Fair Ratio of 17.03x, Interface’s actual P/E of 14.05x suggests the shares are trading below that level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Interface Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This is where you set out your story for Interface, link that story to your own forecast for revenue, earnings and margins, and then compare your fair value to the current price using an easy tool on Simply Wall St’s Community page that updates automatically as new news or earnings arrive. One investor might build a Narrative that lines up with a fair value near the higher analyst target of US$36.00, while another might lean closer to the lower target of US$30.00. By seeing these different Narratives side by side, you can quickly judge whether the current Interface share price lines up with your own view or suggests you should wait, add, or trim.

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