Cabot (CBT): Valuation Update Following Expansion of Sustainable Carbon Production in Louisiana

Cabot (CBT) has just announced an expansion of its manufacturing capabilities in North America. The Ville Platte, Louisiana site is now equipped to produce circular reinforcing carbons using sustainable technology. This move boosts Cabot’s global footprint in certified, recycled materials and aligns with the tire industry’s push for increased sustainability.

See our latest analysis for Cabot.

Cabot’s push into circular reinforcing carbons arrives amid a challenging stretch for its shares, with a 1-year total shareholder return of -39.8% and the share price sitting at $68.45 after notable declines in recent months. While the company’s focus on sustainability and supply chain efficiency points to long-term opportunity, recent price performance suggests the market is still weighing near-term risks more heavily than growth potential.

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With shares down sharply over the past year, but analysts projecting meaningful upside from here, investors are left weighing whether Cabot is trading at a discount or if the market has already taken future growth into account.

Price-to-Earnings of 8.7x: Is it justified?

Cabot's shares currently trade at a price-to-earnings (P/E) ratio of 8.7x, noticeably below both its industry peers and historical averages. This points to shares being undervalued by the market.

The P/E ratio expresses how much investors are willing to pay today for a dollar of earnings and is a key benchmark for mature sectors like Chemicals, where profitability is a primary focus. For Cabot, an 8.7x P/E suggests investors have discounted near-term challenges heavily compared to the sector's 25x average.

When a stock trades at such a significant discount to its industry, it often signals that the market has priced in more risk, slower growth, or company-specific factors. Yet, Cabot's solid history of profit growth and its robust return on equity stand out in stark contrast and may indicate potential market mispricing.

This gap between Cabot’s P/E and the industry's average is hard to ignore. While some skepticism may be warranted due to recent earnings volatility, the valuation leaves room for multiple expansion if future results exceed subdued expectations.

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

Result: Price-to-Earnings of 8.7x (UNDERVALUED)

However, weaker recent earnings and ongoing volatility in share price could limit near-term gains, especially if market sentiment remains cautious on the sector.

Find out about the key risks to this Cabot narrative.

Another View: The DCF Perspective

Taking a step back from earnings multiples, the SWS DCF model also points to Cabot being undervalued. The share price near $68.45 is trading well below our estimate of fair value at $95.98. This method looks at future cash flows rather than current profits, providing a different perspective on valuation.

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 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 this perspective doesn’t match your own take or you want to dig deeper into the numbers yourself, you can generate your own narrative in just a few minutes. Do it your way.

A great starting point for your Cabot research is our analysis highlighting 3 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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