Is Universal Stock a Hidden Gem After Tobacco Regulation Headlines?

• Curious if Universal stock is a hidden gem or if its current price still leaves room for upside? Let’s dig in and see what’s really going on behind the ticker.
• Universal’s share price dipped slightly by 0.7% over the past week, but it has bounced back 3.0% in the last month and remains up by an impressive 47.5% over five years. This signals both volatility and long-term growth potential.
• Industry news this month highlights a renewed focus on tobacco regulations and shifting demand for agricultural commodities. Both factors could explain the recent price fluctuations. Market observers are watching closely to see how Universal navigates these evolving industry dynamics.
• Right now, Universal gets a 4 out of 6 on our valuation checks, putting it firmly into the undervalued territory. Next, we’ll break down what this score means and the methods behind it. There is also a different approach to measuring true value that readers will discover by the end of this article.

Find out why Universal's -2.1% return over the last year is lagging behind its peers.

Approach 1: Universal Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a widely used method for determining a company’s intrinsic value by estimating future cash flows and discounting them back to today’s dollars. Essentially, it tries to forecast how much cash Universal will generate over time and then calculates what those future dollars are worth right now.

For Universal, the current Free Cash Flow stands at $139.78 million. Analysts anticipate moderate growth in the coming years, with projected Free Cash Flow rising to $250.5 million by 2027. Extrapolations beyond analyst estimates suggest that FCF could reach as high as $531.14 million in 2035, based on various growth rates applied in the model.

Using the 2 Stage Free Cash Flow to Equity method, the DCF analysis yields an intrinsic value of $242.68 per share. This model’s implications are striking. The calculation suggests Universal stock is trading at a 78.3% discount to its fair value, signaling significant undervaluation based on these cash flow projections.

Compared with the market price, Universal looks deeply undervalued if you trust the DCF approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Universal is undervalued by 78.3%. Track this in your watchlist or portfolio, or discover 933 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 Universal.

Approach 2: Universal Price vs Earnings

The Price-to-Earnings (PE) ratio is the preferred metric when valuing profitable companies like Universal. It directly reflects how much investors are willing to pay for each dollar of current earnings. A lower PE can signal undervaluation if the business has solid earnings and growth prospects. Higher PEs may be justified by strong expected growth or lower risk.

Growth expectations and risk profiles are key to determining what constitutes a "normal" or "fair" PE ratio. Companies with higher earnings growth or lower risk often see higher PE ratios, and vice versa. For Universal, the current PE ratio sits at 11.7x. This is below the Tobacco industry average of 13.8x and well beneath the peer average of 34.5x, suggesting some degree of undervaluation when viewed strictly against these benchmarks.

Simply Wall St’s proprietary "Fair Ratio" for Universal is 11.0x. Unlike simple industry or peer comparisons, the Fair Ratio factors in Universal’s earnings growth, profit margins, industry characteristics, market cap, and the specific risks the company faces. This provides a much more refined view of what a rational valuation should be.

Comparing Universal’s actual PE of 11.7x to its Fair Ratio of 11.0x, the stock is trading at a very slight premium but still aligns closely with its fundamentals. This suggests the market price accurately reflects Universal’s earnings potential, making it a fair value on a PE basis.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1441 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Universal Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. Narratives are a simple yet powerful way for investors to connect the numbers to a story and a personal perspective. You can describe what you believe Universal’s future will look like, set your own assumptions for revenue, earnings, margins, and then see how those shape your fair value estimate.

Each Narrative links Universal’s business story to a financial forecast and a resulting fair value, making the investment case more relatable and actionable. Narratives are available in Simply Wall St’s Community page, where millions of investors share, compare, and discuss their perspectives. This tool makes it easy for anyone to test "what if" scenarios and identify new opportunities or risks.

Narratives help you make decisions by comparing your calculated fair value to the latest market price. Since Narratives update automatically as new news or earnings arrive, you always have a live and relevant evaluation. For example, some investors look at Universal’s expanding ESG-aligned supply chains and forecast a fair value as high as $78. Others focus on margin pressures and oversupply risks, providing a more cautious view and a range of price targets to consider.

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