Cabot (CBT): Assessing Valuation After Earnings Reveal Decline in Sales and Net Income

Cabot (CBT) recently announced its fourth quarter and full year financial results, with both sales and net income coming in lower than the previous year. This drop in performance has naturally caught the attention of investors.

See our latest analysis for Cabot.

Cabot's recent earnings miss and the accompanying leadership shift appear to have intensified selling pressure. The stock posted a 30.7% share price decline year-to-date and a total shareholder return of -42.2% over the past year. After years of strong long-term gains, momentum has clearly faded as investors reassess the company’s growth outlook and risk profile.

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With shares now trading at a notable discount to analyst targets after a tough year, investors must ask themselves: is Cabot now undervalued, or is the market simply reflecting a more challenging growth outlook?

Price-to-Earnings of 9.9x: Is it justified?

Cabot currently trades at a price-to-earnings (P/E) ratio of 9.9x, which makes the stock appear attractively valued next to its recent closing price of $61.60. This P/E suggests that investors may be underpricing Cabot’s earnings power relative to peers.

The P/E ratio measures what investors are willing to pay today for $1 of current earnings. In Cabot’s case, a 9.9x ratio is typically seen in companies with lower expected growth or higher perceived risk. Cabot’s recent history and industry dynamics are also key considerations.

Compared to the US Chemicals industry average P/E of 22.9x, Cabot stands out as significantly cheaper. It also trades well below the average P/E of its direct peers, which is 30.8x. If market sentiment or fundamentals improve, there is room for the multiple to move closer to industry levels.

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

Result: Price-to-Earnings of 9.9x (UNDERVALUED)

However, competitive pressures and sluggish industry growth could weigh on Cabot’s recovery and could delay any potential re-rating of its valuation.

Find out about the key risks to this Cabot narrative.

Another View: DCF Valuation Sheds a Different Light

The SWS DCF model offers a long-term, cash flow-based perspective and values Cabot at $95.23 per share, which is well above its current price of $61.60. This suggests the market may be too pessimistic about Cabot’s future potential. Is this gap a genuine opportunity, or are risks lurking beneath the surface?

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 Cabot 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 897 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 Cabot Narrative

If you want to dig deeper or shape your own conclusions, you can craft your own detailed view in just a few minutes. Do it your way

A great starting point for your Cabot research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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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