Does Lowe's Still Have Room to Run After 16% Rally and Strong Q1 Earnings?

Trying to figure out what to do with your Lowe's Companies shares or considering jumping in? You are definitely not alone right now. With NYSE:LOW stock closing recently at $257.14, investors are looking for clues after a string of steady gains. Over the last month alone, Lowe's is up 16.4%, with a 14.9% bump over the last three months, and a remarkable 65.2% gain if you zoom out to the five-year timeframe. The company has grown annual revenue and net income recently, helping support those moves. There are also shifting trends in retail and economic growth adding to the mix.

Looking deeper, Lowe's currently holds a valuation score of 3 out of 6, which means it passes three of the six major undervaluation checks that analysts watch. That does not signal a screaming bargain, but it certainly does not suggest the stock is overheated either. The price still sits a bit under the average analyst target of $265, and the small intrinsic discount hints that some see further room for growth.

But how do you decide if now is the time to buy, hold, or wait it out? Each valuation method tells a different story. Next, let us break down these three green flags, the checks that Lowe's passes, and the three it does not. This may provide a clearer view of where the stock really stands, and perhaps reveal a better approach to understanding its real value by the end of this article.

Lowe's Companies delivered 8.1% returns over the last year. See how this stacks up to the rest of the Specialty Retail industry.

Approach 1: Lowe's Companies Cash Flows

A Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and adjusting them for the time value of money. This process helps gauge whether the current share price reflects its fundamental worth.

For Lowe's Companies, the latest reported Free Cash Flow is $6.89 billion, with projections indicating growth to $9.06 billion by 2030. Analysts anticipate annual gains, and their ten-year outlook forecasts continued, though steady, increases in cash generation.

By discounting these projections back to today, the DCF model estimates Lowe's intrinsic value at $262.87 per share. With the stock recently trading at $257.14, this suggests it is about 2.2% undervalued compared to the model’s fair value.

While the DCF indicates a modest opportunity, the difference is limited, which means the share price is very close to what the company’s long-term cash flows would justify for investors.

Result: ABOUT RIGHT

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lowe's Companies's DCF analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Lowe's Companies Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular way to value established, profitable companies like Lowe's. It helps investors compare how much they are paying for each dollar of earnings, making it a useful gauge when the company has a consistent track record of profitability.

The “normal” or “fair” PE ratio for a stock can vary depending on growth expectations and perceived risk. If analysts expect strong future earnings growth or view the business as safer than most, a higher PE can be justified. Lower growth or higher risk would support a lower PE instead.

Lowe's Companies currently trades at a PE ratio of 21.1x. For context, the average PE among other specialty retail companies is 18.6x, while the peer group average is much higher at 46.0x. The proprietary Fair Ratio for Lowe's, which takes into account its earnings growth, profitability, and other factors, is 21.5x. This puts the company’s actual PE almost exactly in line with its fair value, suggesting that the market is pricing Lowe's very close to what its current fundamentals justify.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Lowe's Companies Narrative

While traditional valuation tools like PE ratios and DCF models help you crunch the numbers, they do not always tell the full story behind a company’s prospects. This is where Narratives come in. A Narrative is your unique perspective or “story” about how a business, like Lowe’s Companies, might perform over time, connecting real-world events and assumptions with future revenue, margins, and what you believe is a fair share price.

By linking the business story to concrete financial forecasts and fair value estimates, Narratives make investing more personal and evidence-based. The Simply Wall St platform makes it easy for anyone, from beginners to professionals, to build, adjust, and share Narratives with millions of other investors. This helps each person see different points of view.

With Narratives, you can decide when to buy or sell by comparing your calculated fair value against today’s price, with your story updating automatically if there is new news or earnings data. For example, at Lowe’s Companies, some investors see digital expansion and acquisitions unlocking $305 a share, while others are more cautious and value the business closer to $207. Your Narrative helps you stay clear on why you think your perspective makes sense.

Do you think there's more to the story for Lowe's Companies? Create your own Narrative to let the Community know!

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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