Is It Time To Reassess Element Solutions (ESI) After Recent Materials Sector Re Rating?

To understand whether Element Solutions might still offer value at its recent price, you need to see how its fundamentals compare with what the market is currently paying.

Over shorter periods, the stock has been mixed, with a 0.2% return over the last week, a 7.9% decline over the last month, a 19.7% gain year to date and a 24.5% return over the last year, alongside 75.2% and 78.7% returns across the past 3 and 5 years respectively.

Recent news flow has highlighted Element Solutions in the context of broader materials sector interest. This has given investors fresh reasons to reassess the stock's risk and reward balance. Coverage has focused on how companies like Element Solutions are being re-rated as investors look more closely at balance sheets, capital allocation and where earnings quality sits within the sector.

On Simply Wall St's valuation checks, Element Solutions currently scores 2 out of 6. The next sections will walk through the standard valuation tools investors often use, before finishing with a more rounded way to think about what this score really means for the stock.

Element Solutions scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Element Solutions Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth by projecting its future cash flows and then discounting those cash flows back to today using a required rate of return.

For Element Solutions, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows in $. The latest twelve month free cash flow sits at about $226.1 million. Analyst and extrapolated projections in the model point to free cash flow of $311.6 million in 2026 and $408.8 million in 2028, with further years extended by Simply Wall St to build a 10 year path.

Pulling all of those projected cash flows together and discounting them back to today gives an estimated intrinsic value of $36.43 per share. Compared with the current market price, this implies the shares are trading at a 14.8% discount, which indicates the model points to the stock being undervalued on these cash flow assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Element Solutions is undervalued by 14.8%. Track this in your watchlist or portfolio, or discover 52 more high quality undervalued stocks.

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

Approach 2: Element Solutions Price vs Earnings

For a profitable company like Element Solutions, the P/E ratio is a common way to check what you are paying for each dollar of earnings. Investors usually expect higher P/E ratios when they see stronger growth potential and lower perceived risk, and lower P/E ratios when growth is more modest or risks are higher.

Element Solutions currently trades on a P/E of 39.63x. That sits above both the Chemicals industry average of 27.18x and the broader peer average of 19.36x, which suggests the market is assigning a higher earnings multiple to this stock than many of its sector peers.

Simply Wall St also calculates a proprietary “Fair Ratio” of 28.51x for Element Solutions. This metric aims to estimate what a reasonable P/E might be after factoring in elements such as earnings growth profile, profit margins, company size, risk indicators and the characteristics of the Chemicals industry. Because it blends these company specific inputs with industry context, the Fair Ratio can be more tailored than a simple comparison with the raw industry or peer averages.

Comparing the current P/E of 39.63x with the Fair Ratio of 28.51x points to the shares trading on a richer multiple than this model suggests.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Element Solutions Narrative

Earlier it was mentioned that there is a better way to understand valuation. Meet Narratives, a simple way for you to attach a clear story about Element Solutions to hard numbers like your assumed fair value and expectations for future revenue, earnings and margins. You can then see that story brought to life on Simply Wall St's Community page, where millions of investors share their views, compare Fair Value to the current price to help decide whether they see the stock as attractive or expensive for their goals, and watch those Narratives update automatically as new news, earnings and forecasts arrive. For example, one Element Solutions Narrative might lean on the analysts' case that earnings could reach US$438.6 million by around 2028 and support a fair value around US$38.50, while a more cautious Narrative might lean closer to the current analyst consensus price target of US$29.10, with both coexisting and giving you a clearer sense of which version of the story you agree with.

Do you think there's more to the story for Element Solutions? 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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