Is Graham Holdings (GHC) Undervalued After Its Recent Strong Run?

Graham Holdings (GHC) stock has seen some interesting moves this month, gaining about 18% over the past 3 months with a steady year-to-date return near 26%. Investors watching the company’s diverse business segments may be reassessing its long-term prospects.

See our latest analysis for Graham Holdings.

Graham Holdings’ share price has shown momentum lately, with a strong total shareholder return of nearly 35% over the past year and more than 180% over five years. While the latest week was softer, long-term investors are likely encouraged by these returns. This suggests the market sees growth potential despite short-term volatility.

If you’re weighing fresh ideas after Graham Holdings’ big run, this could be a great moment to discover fast growing stocks with high insider ownership.

Yet with shares trading well above analyst targets and some valuation metrics looking stretched, the key question is clear: does Graham Holdings still offer value at these levels, or has the market already priced in its future growth?

Price-to-Earnings of 7x: Is it justified?

Graham Holdings trades at a price-to-earnings (P/E) ratio of just 7, well below the US Consumer Services industry average of 17.1 and the overall US market average of 19. This suggests the shares may be priced conservatively, even after their recent rally to $1,089.29 per share.

The price-to-earnings ratio measures how much investors are willing to pay per dollar of earnings. For a mature, diversified business like Graham Holdings, this ratio can signal whether investors expect stable results or further growth. A lower P/E can imply either undervaluation or skepticism about future profits.

Graham Holdings’ much lower P/E compared to industry peers highlights a disconnect between its recent earnings strength and the market’s current expectations. Despite a year of explosive profit growth and a proven record of steady revenue expansion, the market is still valuing GHC at a major discount to its sector. If these strong earnings hold up, the valuation could see upward pressure.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 7x (UNDERVALUED)

However, the large discount to analyst targets and recent negative short-term returns could indicate renewed caution among investors going forward.

Find out about the key risks to this Graham Holdings narrative.

Another View: SWS DCF Model Suggests Overvaluation

While Graham Holdings appears cheap using its earnings multiple, our DCF model presents a different perspective. The SWS DCF model estimates fair value for GHC at $783.22. This means the current share price of $1,089.29 is significantly higher than our calculated intrinsic value. Are investors expecting growth beyond what the numbers show, or is the risk of overvaluation increasing?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Graham Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Graham Holdings Narrative

If you'd rather form your own opinion or dig deeper into Graham Holdings' numbers, now is a great time to analyze the details yourself and Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Graham Holdings.

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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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