Is Universal Trading Below Its True Value After Strong Three-Year Gains?

If you’re wondering what your next move should be with Universal, you’re not alone. Whether you’re a longtime holder, a potential investor, or just curious, there’s a lot to unpack with this stock right now. After a strong rally over the past few years, Universal has cooled off recently, dipping 2.4% over the last week and sliding 2.0% in the past month. Year-to-date it’s almost flat, down just 0.5%, but if you zoom out to the one-year mark, you’ll see a solid 12.1% gain. Over a longer period, Universal has outperformed many rivals, climbing an impressive 42.6% in three years and 71.8% over five years.

Recent price fluctuations seem tied to shifting investor moods about the overall market, with sentiment swinging between optimism about growth prospects and renewed caution. There haven’t been any major shocks particular to Universal; what we’re seeing reflects broad changes in how investors are weighing risk and rewarding value in the market today.

Speaking of value, Universal currently racks up a valuation score of 4 out of 6, meaning it’s undervalued in four of the six key financial checks analysts look for. Many investors find that appealing, but which valuation checks matter most? Could there be a smarter way to interpret the data? Let’s dig into how Universal’s value stacks up by traditional measures, and why understanding these scores only gets you part of the way to a clear investment decision.

Why Universal is lagging behind its peers

Approach 1: Universal Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a widely used valuation technique that estimates a company’s intrinsic worth by projecting its future cash flows and discounting them back to today’s dollars. This approach gives investors a sense of what Universal’s business may be worth based on its ability to generate cash in the years ahead.

For Universal, the most recent Free Cash Flow was $121.4 million. Analysts forecast steady growth, with next year’s Free Cash Flow projected at $244.2 million. Looking further out, Simply Wall St's analysis extrapolates those projections over ten years and anticipates figures between $242 million and $275 million per year by 2035. All estimates are based on Universal’s long-term ability to keep generating cash in US dollars.

Applying this DCF analysis results in an estimated intrinsic value of $139.87 per share. Compared to the current market price, this implies Universal may be undervalued by 61.1%. This substantial implied discount signals that, based on future cash flow potential alone, Universal could be trading at a significant bargain relative to its underlying business fundamentals.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Universal is undervalued by 61.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Universal Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a straightforward method for valuing profitable companies because it relates a company’s market value to its bottom-line earnings. For companies like Universal that consistently deliver profits, the PE ratio is one of the clearest signals of what the market is willing to pay for every dollar the company earns.

While a lower PE can suggest value, what is considered “normal” depends on factors such as growth prospects and perceived risk. Faster-growing, less risky firms often command higher PE ratios, while slower-growing or riskier firms typically trade at lower multiples.

Universal’s current PE stands at 13.1x, which is lower than both the tobacco industry average of 14.2x and the peer average of 43.9x. However, context matters, and that is where the Simply Wall St “Fair Ratio” comes in. The Fair Ratio is a proprietary metric that blends expectations for earnings growth, profitability, risk, industry norms, and company size, providing a more tailored benchmark for what an appropriate PE for Universal should be. For Universal, the Fair Ratio is 11.6x.

Comparing Universal’s actual PE ratio (13.1x) and its Fair Ratio (11.6x), the stock currently trades slightly above its tailored fair value. However, with the difference between the two ratios being modest, Universal’s valuation by this measure appears to be about right given the complete picture of risks and opportunities.

Result: ABOUT RIGHT

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 Universal Narrative

Earlier in this article, we alluded to an even more effective way to interpret value, and this is where Narratives come in. A Narrative is simply the story you believe about a company: your perspective on where it is headed, what its future revenue, earnings, and margins might look like, and what you think is a fair price today based on those expectations.

Narratives connect the dots from a company’s backstory and potential, to a clear financial forecast, and then to an actionable fair value. They are easy to use and accessible right within Simply Wall St’s Community page, where millions of investors share, debate, and update their views.

With Narratives, you can make smarter, more confident decisions by comparing what you think Universal is worth (your Fair Value) to its current market price, making it easy to decide when it is time to buy or sell. As new earnings or news emerge, Narratives automatically update with the latest data, keeping your insight fresh and actionable.

For example, some investors see Universal’s growth in sustainable supply chains and value-added products supporting a fair value as high as $72 per share, while others worry about margin risks and set their fair value much lower. Narratives let you see these perspectives, challenge them, or create your own, giving you a smarter, story-driven way to invest.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com