Is It Too Late To Consider Element Solutions (ESI) After A 93% One Year Surge

• If you are wondering whether Element Solutions at around US$40.75 is still good value after a strong run, the next sections walk through what the current price might be implying.
• The stock is down 3.8% over the last week, slightly up 1.0% over the last month, and has returned 57.1% year to date and 92.8% over the past year, which can change how the market views both its potential and its risks.
• These moves sit against a backdrop of broader interest in specialty chemicals and materials companies, as investors reassess how these businesses fit into supply chains and end markets. Sector wide shifts in sentiment, rather than company specific headlines, appear to be a key influence on Element Solutions right now.
• Despite these strong returns, Element Solutions currently has a valuation score of 0/6. The rest of this article will walk through different valuation methods to show what the market might be pricing in and then finish with a more intuitive way to think about what that means for you.

Element Solutions scores just 0/6 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 projects the cash Element Solutions could generate in the future and then discounts those cash flows back to today to estimate what the stock might be worth now.

For Element Solutions, the model used is a 2 Stage Free Cash Flow to Equity approach. The company’s latest twelve months free cash flow is $123.9 million. Analyst and extrapolated projections suggest free cash flow of $202.5 million in 2026 and $441.3 million in 2028, with further years estimated by Simply Wall St out to 2035. All of these figures are in $ and remain below $1b, so they are considered in millions rather than billions.

When those projected cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $40.56 per share, compared with the current share price of about $40.75. That implies the stock is roughly 0.5% above the model’s estimate, so the market price and the DCF value are very close.

Result: ABOUT RIGHT

Element Solutions is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

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 profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of current earnings, which makes it a common shorthand for comparing stocks that already generate consistent profits.

A higher or lower P/E often reflects what the market expects from a company’s future earnings and how risky those earnings might be. Higher growth and lower perceived risk usually justify a higher “normal” P/E, while slower growth or higher risk usually point to a lower one.

Element Solutions currently trades on a P/E of 66.76x. That sits above the Chemicals industry average of 26.67x and the peer average of 31.57x. Simply Wall St’s Fair Ratio model, which estimates what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and risk, suggests a Fair Ratio of 34.03x for Element Solutions.

This Fair Ratio can be more informative than a simple comparison with peers or the industry, because it adjusts for company specific characteristics instead of assuming all stocks deserve similar multiples. On this view, Element Solutions’ current P/E of 66.76x is materially above the Fair Ratio of 34.03x, which points to the stock trading on a richer multiple than those fundamentals alone would imply.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Element Solutions Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives let you attach your own story about Element Solutions to the numbers by connecting your view on its future revenue, earnings and margins to a financial forecast, a Fair Value estimate and then an easy Fair Value versus Price check on Simply Wall St’s Community page, where Narratives, including those that see more upside with assumptions like earnings of US$399.8 million, an 11.7% margin and a 30.8x future P/E, and those that are more cautious, are updated automatically when new information such as earnings reports or news is added. This gives you a simple tool to decide how the stock fits your own view.

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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