Is Sea’s Strategic Expansion Justifying Its 16% Drop While Growth Prospects Remain Strong?

• Wondering if Sea is trading at a bargain, or if the current price is too steep? You are not alone, as investors across the globe are asking the same question about this high-profile stock.
• The stock has seen a rollercoaster ride lately, with a 6.8% dip in the past week and 16.2% over the last month. Yet it still holds impressive year-to-date returns of 25.2% and has climbed 16.2% over the past year.
• Recent headlines show that Sea has been making strategic moves in its key markets, which has caught the attention of both investors and competitors. The buzz around new partnerships and product launches is fueling debates about the company's growth pathway and what that could mean for its fair value.
• According to our valuation scorecard, Sea scores 3 out of 6 on our undervaluation checks. It is clearly a stock that deserves a closer look. Next, we will break down what this score really means by digging into different valuation methods, and at the end, you will see an even more insightful way to judge Sea's value potential.

Sea delivered 16.2% returns over the last year. See how this stacks up to the rest of the Multiline Retail industry.

Approach 1: Sea Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and then discounting those cash flows back to their present value. This approach is particularly helpful for growth stocks like Sea, where future earnings potential matters as much as current profits.

According to the latest data, Sea generated Free Cash Flow (FCF) of $3.58 billion in the last twelve months. Analysts expect this number to keep growing, with projections reaching $7.8 billion by 2029. Since analysts generally provide estimates for up to five years, longer-term figures beyond that are extrapolated by Simply Wall St to provide a ten-year outlook. These projections help capture Sea's growth trajectory and potential to generate cash over time.

Based on the DCF calculation using the 2 Stage Free Cash Flow to Equity model, Sea's estimated intrinsic value is $315.68 per share. With the current stock price trading at a 58.4% discount to this value, the DCF model strongly suggests Sea is significantly undervalued by the market right now.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Sea is undervalued by 58.4%. Track this in your watchlist or portfolio, or discover 921 more undervalued stocks based on cash flows.

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

Approach 2: Sea Price vs Earnings (PE Ratio) Analysis

For companies that are consistently profitable, like Sea, the Price-to-Earnings (PE) ratio is a widely accepted metric to gauge valuation. It shows how much investors are willing to pay for each dollar of earnings generated by the company and offers a clear picture of market expectations relative to profits.

When deciding what counts as a reasonable or “fair” PE ratio, it is important to consider both earnings growth and company risk. Higher growth prospects typically justify a more expensive valuation, while riskier companies tend to trade at lower multiples. In Sea’s case, the current PE ratio stands at 54.8x, which is notably above the Multiline Retail industry average of 18.4x and the peer group average of 49.6x.

To provide more context, Simply Wall St uses its proprietary “Fair Ratio,” which for Sea is assessed at 33.8x. This Fair Ratio is more meaningful than the industry or peer comparisons because it factors in not only Sea’s earnings growth but also its unique risks, profit margins, industry dynamics, and market cap. By taking a holistic view, the Fair Ratio offers a sharper lens to judge valuation.

Comparing Sea’s actual PE ratio of 54.8x to its Fair Ratio of 33.8x suggests the stock is priced substantially higher than justified on fundamentals, based on these factors.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1421 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Sea Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story about a company, connecting your assumptions and outlook (such as future revenue, earnings, and margins) to a financial forecast and, from there, estimating what you believe is a fair value for the stock.

Narratives make investing more approachable because they let you tie the facts and numbers to your unique view of Sea’s future, all within the Simply Wall St Community page, a platform used by millions of investors globally. By creating or browsing Narratives, you can see a transparent link between a company’s story, specific financial forecasts, and a resulting valuation, making it easier to decide if a stock is a buy, hold, or sell at today’s price.

The real power of Narratives comes from their flexibility and dynamism. Every time new news or earnings updates are released, your Narrative (and its fair value estimate) updates automatically. For example, some investors see Sea’s international expansion and fintech growth as supporting a $241 share price, while others focus on competitive and regulatory risks, setting their fair value closer to $165. Narratives help you frame your own investment decision and act confidently, based on your personal perspective and the latest data.

Do you think there's more to the story for Sea? 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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