Is West Pharma Fairly Priced After 12.6% Drop and Biologics Packaging Buzz?

• Wondering if West Pharmaceutical Services is a bargain or a bubble? You are not alone, as investors of all stripes are eager to know what the current price really means.
• The stock has seen mild swings recently, ticking up 1.2% over the last week and 5.3% over the past month. However, it is still down 12.6% year-to-date and 11.0% over the past year, hinting at shifting optimism and risk perceptions.
• Recent headlines have highlighted ongoing industry innovation and regulatory changes, putting a spotlight on companies like West. Market chatter points to the company’s expanding role in biologics packaging, which could be contributing to renewed investor interest and those recent price moves.
• According to our valuation checks, West Pharmaceutical Services scores just 1 out of 6 for being undervalued, so there is a lot to unpack when it comes to value. Next, we will break down how traditional valuation approaches stack up, but we will also show you why there is an even smarter way to think about valuation by the end of this article.

West Pharmaceutical Services scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: West Pharmaceutical Services Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This method focuses on how much cash the business will generate, adjusting for the time value of money. It can offer a useful reality check versus the current share price.

West Pharmaceutical Services currently generates free cash flow of $336.7 Million. According to analyst forecasts, free cash flow is projected to reach $542 Million by 2028. The next 5 years are based on professional analyst estimates, with future growth extrapolated by Simply Wall St for a complete 10-year outlook.

Based on these projections, the estimated intrinsic value of West Pharmaceutical Services is $173.46 per share, calculated with a 2 Stage Free Cash Flow to Equity model. However, this value is 65.4% lower than the recent share price, which signals that the stock is likely overvalued according to this DCF approach.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests West Pharmaceutical Services may be overvalued by 65.4%. Discover 841 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 West Pharmaceutical Services.

Approach 2: West Pharmaceutical Services Price vs Earnings

The Price-to-Earnings (PE) ratio is a time-tested benchmark for evaluating profitable companies, providing a straightforward way to assess how much investors are willing to pay for each dollar of earnings. Since West Pharmaceutical Services generates consistent profits, the PE ratio is a meaningful lens because it anchors valuation directly to earnings power.

Growth expectations and risk profile play a big role in what is considered a “normal” or fair PE ratio for any company. High-growth firms typically command higher PE ratios to reflect anticipated earnings expansion, while elevated risks or volatile markets can lower the appropriate PE ratio.

Currently, West Pharmaceutical Services trades on a PE ratio of 42x, which is higher than both its peer average of 29x and the broader industry average of 38x for Life Sciences. However, Simply Wall St’s proprietary “Fair Ratio,” which tailors the benchmark by factoring in company-specific measures like earnings growth, profit margins, industry, market cap, and risk, suggests a fair PE of 27x for West. This nuanced metric goes beyond simple peer or sector comparisons and offers a more holistic view of what the company should reasonably be valued at given all the data in context.

Comparing the actual PE ratio (42x) to the Fair Ratio (27x), the stock currently appears to be priced above what a balanced, data-driven assessment would suggest.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your West Pharmaceutical Services Narrative

Earlier we mentioned that there is an even better way to understand valuation. Now let us introduce you to Narratives. A Narrative is your own story for a company, connecting your beliefs about how the business will perform such as future revenue, profit margins, and fair value with a financial forecast and a price you think is reasonable. Narratives help you bring together not just the numbers, but also your reasoning about why those numbers matter. This creates a clearer link between a company's unique situation and its true worth.

You do not have to be an expert to use Narratives. They are available to everyone on Simply Wall St’s Community page, where millions of investors share, compare, and track their perspectives. With Narratives, you can see how your expectations for West Pharmaceutical Services stack up against others and use real-time updates when new news or earnings come in, so your analysis is always up to date.

For example, right now some investors believe West Pharmaceutical Services could be worth as much as $350 per share, pointing to growth opportunities in biologics and higher margins. Others are more cautious, setting fair value closer to $260 due to operational risks and shifting demand. Narratives make it simple to visualize these different outlooks and help you decide whether to buy or sell by comparing your Fair Value to today’s price.

Do you think there's more to the story for West Pharmaceutical Services? 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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