Is BILL Holdings a Hidden Opportunity After 41% Price Drop and New Strategy News?

• Wondering if BILL Holdings is a diamond in the rough or still too risky? You are not alone. Lots of investors are curious if the current price is an opportunity or a warning sign.
• The stock's journey has been a rollercoaster, with the price down 2.2% in the past week, 6.9% over the last month, and a sizable 40.9% decline since the start of the year.
• Recent headlines have centered on the company's evolving strategies and upcoming product launches. These developments have sparked fresh debates about its future direction and have kept BILL Holdings in the spotlight as investors weigh whether its innovation can drive a turnaround or if challenges will linger.
• On our valuation checks, BILL Holdings scores a 5 out of 6, suggesting the stock may be undervalued on several measures. Next, we will break down what goes into that score and explore an even smarter way to assess its true value by the end of the article.

Find out why BILL Holdings's -14.9% return over the last year is lagging behind its peers.

Approach 1: BILL Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s true worth by forecasting its future cash flows and then discounting those back to today’s dollars. This approach helps determine if a stock’s current price fairly reflects its potential.

For BILL Holdings, the latest reported Free Cash Flow (FCF) is $314.93 Million. Analysts anticipate steady FCF growth, projecting $519.5 Million by 2028. Beyond analyst estimates, longer term projections are extrapolated, with FCF forecast to reach approximately $864 Million by 2035, according to external modeling.

Based on these cash flows, the DCF model calculates the intrinsic value of BILL Holdings shares at $91.99. This valuation suggests the stock is trading at a 46.0% discount to its perceived fundamental value.

In simple terms, the DCF model views BILL Holdings as significantly undervalued relative to its future cash-generating potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests BILL Holdings is undervalued by 46.0%. Track this in your watchlist or portfolio, or discover 839 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 BILL Holdings.

Approach 2: BILL Holdings Price vs Sales

Price-to-Sales (P/S) is a preferred valuation metric for BILL Holdings, especially because it offers a clear view of how the market values each dollar of revenue, regardless of current profits. For tech and software companies with high growth potential but slim profits, P/S often provides a more meaningful lens than earnings-based multiples.

Growth expectations and risk play a big role in what is considered a fair P/S ratio. Higher anticipated growth or lower business risk typically justify a higher multiple. Slow growth or rising risks tend to push a fair multiple lower.

Currently, BILL Holdings trades at a Price-to-Sales ratio of 3.45x. For context, this is well below both the industry average for software companies at 5.33x and the peer group average of 13.34x. However, just comparing company multiples to the industry or peers can be misleading if important company specifics are overlooked.

This is where Simply Wall St’s proprietary "Fair Ratio" becomes especially valuable. The Fair Ratio, at 7.26x for BILL Holdings, factors in the company's growth potential, profit margins, industry, size, and level of risk. Unlike a basic peer comparison, this benchmark reflects what multiple truly suits this company’s unique strengths and risks.

Comparing BILL Holdings’ current P/S of 3.45x to its Fair Ratio of 7.26x reveals the stock is trading well below what would be considered a justified value for its profile.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1408 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BILL Holdings 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 story about a company. It is how you connect your expectations around future revenue, earnings, and margins with your personal view of what the company should be worth.

Instead of just relying on numbers, Narratives allow you to tie together qualitative business drivers, market developments, and your take on risks or opportunities, all of which then shape your own fair value estimation. This approach links the company's evolving story to a clear financial forecast and translates it into an actionable fair value, making investment decisions more thoughtful and nuanced.

Narratives are accessible to everyone through Simply Wall St’s Community page, where millions of investors use and update them in real time as new news or earnings come in. By comparing the Fair Value you derive from your Narrative to the current share Price, you gain a powerful tool for deciding whether now is the right time to buy or sell.

For example, one investor’s Narrative for BILL Holdings may emphasize high-margin growth from new AI-driven products, leading to a fair value estimate of $89.0 per share. Another investor may focus on margin risk from volatile transaction revenues, resulting in an estimate as low as $42.0 per share.

Do you think there's more to the story for BILL Holdings? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com