Perimeter Solutions (PRM): Assessing Valuation Following Upgraded Analyst Outlook and Improved Earnings Estimates

Perimeter Solutions (NYSE:PRM) is catching investors’ attention after being recognized with a top Zacks Rank. This recognition reflects a wave of analyst optimism and higher full-year earnings estimates, which has driven renewed enthusiasm for the stock.

See our latest analysis for Perimeter Solutions.

After a stellar stretch of momentum, Perimeter Solutions’ share price has climbed 18.6% over the past month, capping off an impressive year-to-date share price return of nearly 120%. This recent surge, supported by upbeat analyst sentiment and improved earnings forecasts, reflects renewed confidence in the company’s long-term growth story.

If this rally has you rethinking what else could be next, why not broaden your perspective and discover fast growing stocks with high insider ownership

But with shares already up nearly 120% in 2024 and trading close to analyst targets, investors must now decide whether Perimeter Solutions remains undervalued or if the market has fully priced in its growth potential.

Price-to-Earnings of 52.8x: Is it justified?

Perimeter Solutions' price-to-earnings ratio stands at 52.8x, which is strikingly high compared to both peers and industry benchmarks at the recent close of $27.88. This signals that investors are currently paying a premium for every dollar of company earnings.

The price-to-earnings (P/E) ratio reflects what the market is willing to pay today for a stock based on its past or future earnings. In sectors like chemicals, where growth rates can be modest and profits volatile, this multiple helps investors weigh how much optimism is already reflected in the current price.

In this case, Perimeter Solutions looks expensive not only against its direct peer group average of 26.3x, but also against the broader US Chemicals industry, which trades at a much lower 23x. This sizable gap means the market is pricing in significant future profit growth or rewarding recent profitability. However, the bar for performance is now set very high.

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

Result: Price-to-Earnings of 52.8x (OVERVALUED)

However, slowing revenue growth or unexpected competition could quickly challenge the market's optimism and test investor conviction in Perimeter Solutions’ elevated valuation.

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

Another View: What Does Discounted Cash Flow Suggest?

Looking from a different angle, the SWS DCF model places Perimeter Solutions’ fair value at $29.62, about 6% above the recent share price of $27.88. This result suggests that shares may be modestly undervalued at the moment, which is in contrast with their high price-to-earnings multiple. Could the market be overlooking something about the company’s real worth?

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 914 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 think there is more to the story or want to dive deeper into the numbers yourself, you can shape your own view and see where your research leads. Do it your way

A great starting point for your Perimeter Solutions 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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