A Look at Perimeter Solutions (PRM) Valuation Following Strong Q3 Results and Major Customer Agreement

Perimeter Solutions (PRM) reported increased third-quarter sales, along with ongoing reductions in net losses over the past nine months. The company also secured a new multi-year deal with its top fire-retardant customer, supporting greater revenue stability.

See our latest analysis for Perimeter Solutions.

Perimeter Solutions’ year has been defined by a clear shift in momentum, with its share price returning 68.2% year-to-date and a remarkable 185.7% over three years. The fresh multi-year contract and improving fundamentals seem to have caught investors’ attention, driving a surge in confidence about the company's growth potential and resilience over the longer term.

If you're curious where else this kind of performance might show up, now is a great time to broaden your investing horizons and discover fast growing stocks with high insider ownership

Yet with recent gains and a price still trading below analyst targets, the real question is whether Perimeter Solutions is currently undervalued or if the market has already factored in all the expected growth. Is there a buying opportunity, or is future upside already priced in?

Price-to-Earnings of 39.3x: Is it justified?

Perimeter Solutions is currently trading at a price-to-earnings (P/E) ratio of 39.3x, positioning it as more expensive than both its closest peers and the US Chemicals industry based on the last closing share price of $21.34.

The price-to-earnings ratio measures how much investors are willing to pay for each dollar of the company’s earnings. For companies in mature, cyclical sectors such as chemicals, a high P/E usually signals that investors expect significant future profit growth or that there is a perceived competitive moat justifying the premium.

At 39.3x, Perimeter Solutions’ P/E ratio stands out as the stock trades at a premium compared to the peer average of 28.4x and the US Chemicals industry average of 26.4x. This suggests heightened investor expectations for future profitability or exceptional business qualities, but it could also indicate that the share price is running ahead of earnings reality. If the market’s view shifts, the P/E could revert closer to industry norms.

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

Result: Price-to-Earnings of 39.3x (OVERVALUED)

However, slower revenue growth and a premium valuation mean any earnings disappointment or industry headwinds could quickly dampen the current optimism around Perimeter Solutions.

Find out about the key risks to this Perimeter Solutions narrative.

Another View: DCF Model Shows Deep Discount

While the market sees Perimeter Solutions as expensive based on its earnings multiple, our DCF model points in a different direction. According to this method, PRM trades nearly 80% below its estimated fair value of $101.52. This suggests there could be significant potential upside if market assumptions shift. Could investors be overlooking real value here?

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 Perimeter Solutions 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 857 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 Perimeter Solutions Narrative

If you want a different perspective or simply enjoy digging into the numbers yourself, you can craft your own narrative in just a few minutes, with Do it your way.

A great starting point for your Perimeter Solutions research is our analysis highlighting 2 key rewards and 2 important warning signs 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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