Element Solutions (ESI) Margin Compression To 7.5% Tests Bullish Growth Narratives

Element Solutions (ESI) just wrapped up FY 2025 with fourth quarter revenue of US$676.2 million and basic EPS of US$0.03, alongside trailing twelve month revenue of US$2.6 billion and EPS of US$0.79 that sit against a net profit margin of 7.5%. Over recent quarters the company has seen revenue move from US$593.7 million and EPS of US$0.40 in Q1 2025 to US$676.2 million and EPS of US$0.03 in Q4 2025, while the last 12 months also include a US$59.0 million one off gain and a P/E of 42.9x that many investors will weigh against strong earnings growth forecasts, leaving the focus squarely on how durable margins really are.

See our full analysis for Element Solutions.

With the headline numbers on the table, the next step is to see how this earnings profile lines up with the widely followed narratives around Element Solutions, and where the margin story supports or challenges those views.

See what the community is saying about Element Solutions

Margins Tighten as Net Profit Slips to 7.5%

• Trailing net income of US$190.8 million on US$2.6b of revenue translates to a 7.5% net margin, compared with 9.9% a year earlier, and Q4 FY 2025 net income of US$6.1 million on US$676.2 million of revenue shows how thin recent profitability has been.
• Bears highlight that exposure to cyclical end markets and pricing pressure could compress margins, and the recent move from Q1 FY 2025 net income of US$98.0 million to US$6.1 million in Q4 keeps that concern in focus.
  • The bearish narrative points to weak demand in legacy areas like industrial surface treatment and smartphone concentrated circuitry, which helps explain why the trailing margin sits at 7.5% rather than closer to the earlier 9.9% level.
  • Critics also point to competitive pressure from low cost Asian manufacturers, and the quarter by quarter pattern of net income from US$98.0 million to US$47.4 million, US$39.3 million, then US$6.1 million is consistent with that risk to pricing power.

Skeptics argue that this margin profile could matter more if competition stays intense and legacy demand remains weak, so they pay close attention to how Element Solutions defends profitability over the next few reporting periods. 🐻 Element Solutions Bear Case

US$59m One Off Gain and Earnings Quality

• The last 12 months include a US$59.0 million one off gain, and trailing EPS of US$0.79 and net income of US$190.8 million sit against that boost, which means the underlying earnings power is lower than the headline figures suggest.
• Consensus narrative notes that portfolio optimisation and higher value products are expected to support stronger, more recurring profitability, and the presence of this US$59.0 million one time item becomes a key test of how clean that earnings base really is.
  • On the one hand, the shift toward higher growth areas like data centers and advanced packaging is intended to improve the earnings mix, but the current 7.5% margin and reliance on a US$59.0 million gain show that this transition is still working through the reported numbers.
  • On the other hand, the trailing twelve month revenue of about US$2.6b against US$190.8 million of net income shows that even with the gain included, returns are still moderate, so investors may want to separate recurring profits from one offs before relying on the EPS trend.

P/E at 42.9x and Forecast 25.9% EPS Growth

• The shares trade on a trailing P/E of 42.9x, well above the US Chemicals industry average of 26.6x and peer average of 22.9x, while forecasts point to earnings growth of about 25.9% per year and revenue growth of about 10.2% per year, with a DCF fair value of US$35.37 versus a current price of US$33.69.
• Supporters of the bullish narrative argue that rising demand in advanced electronics, EVs, and data centers plus margin expansion can justify this richer multiple, and the current setup pits those growth assumptions against the high P/E and the US$59.0 million one off gain.
  • The contrast between expected profit margins rising from 9.7% to 15.7% over three years and the current 7.5% trailing margin means a lot of the bullish case rests on execution in newer, higher margin products.
  • At the same time, the stock trading only slightly below the DCF fair value of US$35.37 suggests the market already prices in a meaningful part of the forecast 25.9% EPS growth path relative to the 42.9x multiple today.

If you want to see how these growth assumptions stack up against different scenarios and valuation views, check out the full bull case that investors are debating around Element Solutions. 🐂 Element Solutions Bull Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Element Solutions on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Given the mix of caution and optimism in this update, now may be a good time to review the numbers yourself and decide how you feel about the balance between risk and reward. To help frame that view, take a look at the 2 key rewards and 1 important warning sign that investors are weighing up today.

See What Else Is Out There

Element Solutions is working with thin recent profitability, a 7.5% trailing net margin, a high 42.9x P/E, and earnings padded by a US$59.0 million one off gain.

If you are uneasy about paying a rich multiple for modest margins and one time boosts, take a look at 56 high quality undervalued stocks that may offer stronger value for the risk you are taking today.

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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