How Should Investors View Daqo New Energy After This Week's 18% Share Drop?

If you’re trying to figure out whether to hold on to, buy into, or move past Daqo New Energy, you’re not alone. The stock has given investors plenty to talk about lately, with a rollercoaster of returns over different time frames. Just in the past week, shares dropped a steep 18.1%, which can be jarring even for seasoned watchers. Still, zoom out and you’ll see that year-to-date, the stock is actually up 17.2%, and over the past year, it’s gained 15.8%. The longer-term picture, though, is a different story, with a three-year return sitting at -53.2% and the five-year mark at -40.7%. This serves as a reminder of the sector’s volatility and shifting market expectations.

What’s driving these swings? Like most solar and renewable energy stocks, Daqo’s price often moves in response to global shifts around clean energy policy and market demand signals. Recent market developments, such as evolving supply chain dynamics and changing risk appetites among investors, are likely having an outsized impact on short-term sentiment. Some of the latest slides may look unnerving, but they could also signal heightened uncertainty, or perhaps a reset that’s created a more attractive entry point for long-term believers.

For investors craving a concrete figure, Daqo earns a value score of 3 out of 6, meaning it is currently undervalued on half of the six valuation checks we track. Of course, a simple score doesn’t tell the whole story. Next, I’ll break down how this value is calculated across different valuation methods. Before we wrap up, I will also reveal a deeper way to look at whether Daqo is really offering value right now.

Why Daqo New Energy is lagging behind its peers

Approach 1: Daqo New Energy Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the current value of a company by projecting its future cash flows and then discounting them back to today's dollars. Daqo New Energy's DCF analysis uses a 2 Stage Free Cash Flow to Equity model that weighs both near-term analyst forecasts and longer-term trends extrapolated from those forecasts.

At present, Daqo's last twelve months' free cash flow stands at -$514 million, highlighting near-term challenges. Analysts only provide projections for up to five years, but according to Simply Wall St's extended scenario, free cash flow is expected to grow substantially, reaching approximately $4.7 billion by 2035. This is ten years out. Growth is predicted to accelerate significantly after the next few years, with a turn from negative to positive free cash flows beginning around 2028, where forecasts show $712 million.

Based on the sum of these discounted future cash flows, the DCF intrinsic value is estimated at $464.26 per share. This is a striking result: it suggests the stock is trading at a 94.9% discount to its projected fair value, marking it as deeply undervalued by this model.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Daqo New Energy is undervalued by 94.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Daqo New Energy Price vs Sales

For companies like Daqo New Energy, which may experience fluctuating profitability but still generate significant revenue, the Price-to-Sales (P/S) ratio becomes a valuable valuation tool. The P/S ratio helps investors gauge how much the market is willing to pay for each dollar of sales. This offers a useful perspective, especially when earnings are volatile or negative, as is often the case in cyclical sectors.

It is essential to recognize that growth prospects and perceived risks can drive what investors consider a “normal” or “fair” valuation multiple. Typically, companies with higher expected sales growth and lower risk profiles command higher multiples, while those with uncertain outlooks or sector-specific risks trade at discounts.

Daqo currently trades at a P/S ratio of 2.68x. This sits just above the peer average of 2.50x, but well below the broader semiconductor industry average of 4.52x. However, these raw comparisons do not always capture the full picture. That is where Simply Wall St’s proprietary Fair Ratio comes in. At 0.78x for Daqo, it is a tailored benchmark that factors in the company’s sales growth, margins, risk profile, and market cap, providing a more nuanced and relevant point of reference than industry or peer averages alone.

Since Daqo’s actual P/S multiple (2.68x) is substantially higher than its Fair Ratio (0.78x), this suggests the stock is currently trading above where it should based on its fundamentals and outlook.

Result: OVERVALUED

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

Upgrade Your Decision Making: Choose your Daqo New Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is more than just a set of numbers. It is your own story and reasoning about what a company is worth, built on your expectations for its future revenue, profits, margins, and even its risks. Narratives link all the pieces. You connect Daqo New Energy’s unique business journey with your financial forecasts, and this produces your view of fair value.

On Simply Wall St’s Community page, anyone can create or explore Narratives, making it easy for millions of investors to compare perspectives and keep their research dynamic as new information appears, such as earnings results or market-moving news. If you have a bullish outlook on polysilicon demand and believe regulatory support will drive Daqo’s margins higher, your Narrative might set a fair value well above today’s price, signaling a buying opportunity. On the other hand, if you see risks from industry oversupply or question the sustainability of policy support, your Narrative might calculate a much lower fair value, suggesting caution or even a sell. With Narratives, you can quickly see how price and fair value stack up and update your stance as the story evolves.

Do you think there's more to the story for Daqo New Energy? 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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