Is There Now an Opportunity in Air Products After Recent Share Price Drop?

• Thinking about whether Air Products and Chemicals stock could be a bargain? You are not alone, as plenty of investors are looking for clear signals that it might be undervalued right now.
• The share price has taken a dip lately, falling 4.0% in the last week, 10.3% over the past month, and a notable 13.6% so far this year, which might have shifted the value equation.
• Recent headlines have focused on the global industrial gas sector and new project announcements, painting a picture of shifting demand and expanding opportunities. These factors have likely influenced the latest price moves along with changes in investor sentiment toward the broader materials market.
• Currently, Air Products and Chemicals scores a 3 out of 6 on our valuation checks. Let's dig into how these methods work and why there may be an even better way to think about fair value by the end of this article.

Find out why Air Products and Chemicals's -19.2% return over the last year is lagging behind its peers.

Approach 1: Air Products and Chemicals Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value based on projected future cash flows, which are then discounted back to their present value. This approach helps investors understand what a business might truly be worth today based on its future cash-generating potential.

For Air Products and Chemicals, the DCF uses a two-stage Free Cash Flow to Equity model. The company’s latest twelve-month Free Cash Flow stands at negative $2.8 Billion, reflecting recent investments or unusual cash outflows. However, analysts expect a strong turnaround and project Free Cash Flow to increase to nearly $3.0 Billion by 2030. The model includes detailed forecasts for each of the next five years, followed by further estimates extrapolated by Simply Wall St for the remainder of the decade.

Based on these cash flow projections, the DCF model estimates the intrinsic fair value of Air Products and Chemicals' shares at $285.51. Given current market prices, this implies the stock is trading at a 14.3% discount to its fair value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Air Products and Chemicals is undervalued by 14.3%. Track this in your watchlist or portfolio, or discover 850 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 Air Products and Chemicals.

Approach 2: Air Products and Chemicals Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies. It directly reflects how much investors are willing to pay today for each dollar of current earnings. For businesses with a history of consistent profits, like Air Products and Chemicals, the PE ratio offers a straightforward way to gauge whether the stock price is justified by its bottom-line performance.

A company's growth outlook and risk profile play a significant role in determining what investors consider a “normal” or “fair” PE ratio. Higher growth expectations often justify higher PE multiples, while greater risks or earnings volatility might warrant a lower multiple. It is important to compare a firm's PE ratio not only with industry averages but also with its own growth potential and stability.

Air Products and Chemicals is currently trading at a PE ratio of 34.63x. This is above the Chemicals industry average of 26.67x and just above the average for its peer group, which is 32.16x. However, Simply Wall St's proprietary “Fair Ratio” for Air Products and Chemicals, which takes into account factors like future earnings growth, industry conditions, profit margins, company size, and risk, is calculated at 35.49x.

The advantage of using the Fair Ratio over simple peer or industry comparisons is that it considers the unique characteristics of Air Products and Chemicals, including its earnings outlook and risk profile. This makes the Fair Ratio a more tailored benchmark for individual investors who are seeking a specific perspective on value.

Air Products and Chemicals' actual PE is almost exactly in line with its Fair Ratio. This suggests the stock is priced appropriately for its prospects and profile.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1405 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Air Products and Chemicals Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a simple, approachable way for you to describe your story or perspective about a company and connect it directly to numbers, such as your own fair value estimate and future assumptions around revenue, earnings, and margins.

Unlike static metrics, Narratives link the company’s story to a dynamic financial forecast and an up-to-date fair value, making it easier to see whether your investing thesis matches reality. Narratives are easy to create on Simply Wall St’s Community page, trusted by millions of investors as a hub for sharing views and tracking how the market’s story about a company changes over time.

By tying your view of Air Products and Chemicals’ future to clear financial outcomes, Narratives make it transparent to see when your fair value is above or below the current price. This can help you decide if it’s a buy, hold, or sell. Even better, your Narrative updates automatically as new news or earnings reports are released, so your investment case always reflects the latest information.

For example, some investors currently forecast a bullish fair value of $375.00 for Air Products and Chemicals based on strong hydrogen project growth, while others are more cautious, estimating a fair value as low as $275.00 due to margin pressures and competitive risks.

Do you think there's more to the story for Air Products and Chemicals? 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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