NewMarket (NEU): Strong Earnings Growth Meets Low Valuation—A Closer Look at Investor Sentiment

NewMarket (NEU) has shown strong gains in earnings per share, up 18% over the past year and 173% in three years. However, its low price-to-earnings ratio suggests investors remain cautious.

See our latest analysis for NewMarket.

NewMarket’s share price has advanced by over 53% year-to-date, reflecting its strong earnings momentum, while delivering an impressive 1-year total shareholder return of 51%. After recent volatility, long-term holders have also enjoyed a stellar 168% total return over three years. This points to lasting rewards even as short-term price swings persist.

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With such robust performance yet a persistently low price-to-earnings ratio, the big question is whether NewMarket remains undervalued, offering room for gains, or if the market has already factored in its future growth potential.

Price-to-Earnings of 15.4x: Is it justified?

NewMarket’s shares trade at a price-to-earnings (PE) ratio of 15.4x, placing the stock well below both its peer group average and the sector average. With a last closing price of $783.65, this multiple hints that investors may be undervaluing the company’s earnings relative to the broader chemicals industry.

The price-to-earnings ratio shows how much investors are willing to pay for a dollar of earnings, a key indicator for companies with established profitability and steady earnings growth like NewMarket. In the chemicals sector, comparing PE ratios helps reveal whether the stock is being valued more favorably or harshly than its direct competitors.

NewMarket’s PE ratio of 15.4x is notably lower than the US chemicals industry average of 24.4x and also trails the peer group average of 19.4x. This sizable discount suggests the market is not fully pricing in NewMarket’s strong profit growth or its outperformance relative to the industry. If the stock were to move closer to sector norms or a PE fair value, there could be significant upside potential.

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

Result: Price-to-Earnings of 15.4x (UNDERVALUED)

However, investors should stay alert, as sector volatility or unexpected earnings setbacks could quickly change sentiment around NewMarket's current valuation.

Find out about the key risks to this NewMarket narrative.

Another View: Discounted Cash Flow Analysis

While the price-to-earnings ratio shows NewMarket as undervalued, our DCF model provides a similar perspective. The SWS DCF model estimates fair value at $1,473.34, which is significantly higher than the current price of $783.65. This suggests the stock may be trading at a steep discount.

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 NewMarket 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 NewMarket Narrative

If you see things differently or want to dig deeper into the numbers, you can build your own story about NewMarket in just a few minutes with Do it your way

A great starting point for your NewMarket research is our analysis highlighting 2 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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