Is Discover Financial Services (NYSE:DFS) Undervalued?

Let's talk about the popular Discover Financial Services (NYSE:DFS). The company's shares saw significant share price volatility over the past couple of months on the NYSE, rising to the highs of $80.43 and falling to the lows of $69.58. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Discover Financial Services's current trading price of $74.88 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Discover Financial Services’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Discover Financial Services

What is Discover Financial Services worth?

According to my valuation model, Discover Financial Services seems to be fairly priced at around 15.88% below my intrinsic value, which means if you buy Discover Financial Services today, you’d be paying a reasonable price for it. And if you believe the company’s true value is $89.01, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Discover Financial Services’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Discover Financial Services generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Discover Financial Services’s earnings over the next few years are expected to increase by 29.35%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in DFS’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on DFS, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Discover Financial Services. You can find everything you need to know about Discover Financial Services in the latest infographic research report. If you are no longer interested in Discover Financial Services, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.