Is It Too Late To Consider Element Solutions (ESI) After Its Strong Recent Rally?

• If you are wondering whether Element Solutions at around US$35.44 is still reasonably priced or already looking expensive, this article will walk through what the current numbers suggest about value.
• The share price has recently been active, with returns of 9.5% over 7 days, 23.5% over 30 days, 36.6% year to date, and 36.7% over the past year. These moves can change how the market views both upside potential and risk.
• These moves sit against a backdrop of ongoing interest in materials and specialty chemicals companies. Investors often focus on how demand trends and input costs feed into long term expectations. While this piece is not tied to a specific headline, it aims to give you context so those future news items are easier to interpret through a valuation lens.
• On our checks, Element Solutions currently records a valuation score of 1 out of 6. Next we will compare what different valuation approaches say about that price tag, before finishing with a framework that can help you judge value even more effectively.

Element Solutions scores just 1/6 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 takes estimates of the cash Element Solutions could generate in the future and discounts those cash flows back to today, to arrive at an estimate of what the business might be worth now.

For Element Solutions, the model uses last twelve month Free Cash Flow of about $226.1 million and projects how this could develop over time. Analyst inputs extend out a few years, and beyond that Simply Wall St extrapolates the path of cash flows. By 2028, the projection used in this model is Free Cash Flow of $408.8 million, with a full set of annual estimates out to 2035, all discounted back to today using a 2 Stage Free Cash Flow to Equity approach.

When all of those discounted cash flows are added together, the DCF output points to an estimated intrinsic value of about $35.58 per share, compared with a recent share price around $35.44. That implies the shares are roughly 0.4% below the model’s estimate, which is effectively a rounding error for most investors.

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 (P/E)

For a profitable company like Element Solutions, the P/E ratio is a straightforward way to think about value because it links what you pay for each share directly to the earnings that support it. Investors typically accept a higher or lower P/E depending on what they expect for future earnings growth and how much risk they see in those earnings.

Element Solutions currently trades on a P/E of 45.24x. That sits above the Chemicals industry average P/E of 28.59x and above the peer group average of 31.99x. Simply Wall St also estimates a Fair Ratio for Element Solutions of 27.10x. This Fair Ratio is a proprietary estimate of what a reasonable P/E might look like after accounting for factors such as the company’s earnings growth profile, industry, profit margins, market cap and specific risks.

Compared with simple peer or industry averages, the Fair Ratio aims to be more tailored because it adjusts for the company’s own characteristics rather than treating all chemicals names as interchangeable. With the current P/E at 45.24x versus a Fair Ratio of 27.10x, the stock screens as expensive relative to that customised benchmark.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Element Solutions Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, which are simple stories that tie your view of Element Solutions’ future revenues, earnings and margins into a forecast and fair value that updates when new earnings or news arrive. This helps you compare that Fair Value to today’s price and decide whether the stock looks attractive or not. You can see, for example, one Element Solutions Narrative with a Fair Value of US$38.50 based on assumptions about revenue growth, profit margins, a future P/E of 29.45x and a 7.78% discount rate, sitting alongside other Narratives with lower or higher fair values from investors who see the company’s risks and opportunities differently.

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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