Evaluating Sherwin-Williams After Dividend Growth and Recent Price Rebound

• Wondering if Sherwin-Williams is a bargain or looks pricey these days? You are not alone in trying to figure out whether now is the time to buy or wait.
• In the last week, the stock rose 1.9% despite a 12.8% dip over the past year, hinting at renewed interest or shifting risk perceptions. Longer-term gains, like the 52.6% return over five years, show the stock still has plenty of history behind it.
• Recent headlines have focused on strategic business moves and evolving demand in the coatings industry, putting Sherwin-Williams in the spotlight. Some analysts point to sector trends and market volatility as key drivers behind the latest price moves.
• When it comes to valuation, Sherwin-Williams scores just 0 out of 6 on our value checks, making it look expensive by traditional standards, but that is not the whole story. As we explore a range of valuation approaches, keep in mind that there is an even more insightful way to assess a company's value. More on that at the end.

Sherwin-Williams scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Sherwin-Williams Dividend Discount Model (DDM) Analysis

The Dividend Discount Model, or DDM, estimates a company's intrinsic value by projecting future dividend payments and discounting them back to today, based on expected growth and payout sustainability. This model is especially useful for dividend-paying companies like Sherwin-Williams, which has an established track record of distributions.

For Sherwin-Williams, recent figures show an annual dividend per share of $3.45. The company has a high return on equity at 70.2% and a payout ratio of 27.3%, suggesting that less than a third of profits are paid out as dividends, with the rest retained for growth. Long-term dividend growth is projected at 3.26% according to the latest capped forecast, which balances optimism with prudence regarding future increases.

Based on these factors, the DDM arrives at an estimated intrinsic value of $75.27 per share. Compared to Sherwin-Williams’ current share price, this implies the stock is about 356.2% overvalued, indicating it trades well above what this dividend-driven model estimates at present.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests Sherwin-Williams may be overvalued by 356.2%. Discover 923 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Sherwin-Williams.

Approach 2: Sherwin-Williams Price vs Earnings

The Price-to-Earnings (PE) ratio is a commonly used metric for evaluating profitable companies, like Sherwin-Williams. It offers a quick snapshot of what investors are willing to pay for each dollar of earnings, making it especially useful for established businesses that consistently generate profits.

Growth expectations and risk level play a big role in determining what constitutes a “fair” PE. Faster-growing, more stable businesses typically command higher PE ratios, while slower or riskier companies often trade at lower multiples. By comparing the current PE ratio to benchmarks, investors can gauge whether the stock is richly valued, attractively priced, or somewhere in between.

Sherwin-Williams currently trades at a PE ratio of 32.9x. This is higher than the Chemicals industry average of 22.8x and the peer average of 24.9x. However, Simply Wall St’s proprietary “Fair Ratio” model offers an additional perspective. By factoring in the company’s expected earnings growth, profit margins, market cap, risk profile, and industry context, the Fair Ratio for Sherwin-Williams is calculated at 24.2x.

The Fair Ratio can be especially insightful because, unlike simple peer or industry comparisons, it accounts for the unique combination of current performance and future prospects relevant to Sherwin-Williams. This tailored approach allows investors to make more informed judgments about valuation, even when the market is moving.

With a current PE of 32.9x compared to a Fair Ratio of 24.2x, Sherwin-Williams appears to be overvalued according to this multiple-based method.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1438 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Sherwin-Williams Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a straightforward, investor-driven story that connects your personal perspective on Sherwin-Williams, explaining why you believe the company will succeed or face challenges, to key numbers such as projected future revenues, earnings, profit margins, and ultimately a fair value for the stock.

Narratives transform how you invest by linking the company's story to financial forecasts, empowering you to estimate what the stock is truly worth as the business evolves. Creating and comparing Narratives is easy and accessible within the Simply Wall St Community page, used by millions of investors to track and test their ideas.

This approach helps you decide when to buy, sell, or hold by showing how your fair value estimate compares to the current share price. As news breaks or earnings are released, Narratives are updated automatically, keeping your investment thesis relevant and actionable at all times.

For example, some investors think Sherwin-Williams is worth as much as $420 a share due to aggressive growth and innovation, while others see a fair value closer to $258, reflecting concerns about risk and margin pressure. Narratives let you clearly see these viewpoints, so you can choose the one that fits your outlook, adjust the numbers, and invest confidently with real context.

Do you think there's more to the story for Sherwin-Williams? 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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