What Does BofA’s Price Target Cut Mean for Elastic’s Current Valuation?

Thinking about what to do with your Elastic shares, or maybe eyeing an entry point? You are definitely not alone. Elastic has had a wild ride recently, with its stock closing at $83.2 after a month marked by a 9.9% drop and a year-to-date decrease of 16.0%. These moves might signal caution, but some longer-term numbers tell another story, with a respectable 31.0% return over three years and even a small 4.2% increase over the past year.

What is behind these contrasting results? Some of it is tied to broader economic moves and sector-specific headwinds. For instance, investor nerves have been shaken by growing competition for AI-related business, as highlighted in recent analyst previews. BofA's recent price target cut, for example, stoked some concerns around slower revenue growth, reminding everyone the landscape is rapidly evolving and winners will not be crowned overnight. Despite that, Elastic has managed to outperform in some long-term stretches, suggesting its business has resilience.

Now, here is where it gets interesting for anyone taking valuation seriously. Based on our six-step checklist for undervaluation, Elastic scores a strong 5 out of 6, meaning it ticks almost every box for being undervalued. That kind of score does not come around every day. In the next section, we will break down which valuation methods Elastic passes with flying colors, and where it narrowly misses. But before we get to our final word on the stock, stay tuned for a perspective that might change how you think about valuation altogether.

Why Elastic is lagging behind its peers

Approach 1: Elastic Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to today's dollars. This allows investors to assess what the business is fundamentally worth based on its ability to generate cash moving forward.

For Elastic, the DCF approach starts with its most recent free cash flow of $314.1 Million. Analysts provide forecasts for the next five years, and then projections are extended to 2035 by Simply Wall St. These forecasts expect Elastic's free cash flow to steadily increase, reaching a projected $748.1 Million by 2030. Each future year's cash flow is discounted, reflecting both expected growth and risk.

Summing all discounted future cash flows, the model arrives at an intrinsic value of $138.14 per share. That is significantly above the current share price of $83.20, implying the stock is approximately 39.8% undervalued by this methodology.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Elastic is undervalued by 39.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Elastic Price vs Sales

The Price-to-Sales (P/S) multiple is especially relevant for companies like Elastic, which are still in a high-growth phase and often prioritize reinvestment over immediate profits. For software businesses with a clear path to revenue expansion but not yet consistent profitability, P/S can offer a clearer picture of how the market values their growth potential compared to peers.

Elastic currently trades at a P/S ratio of 5.7x. For context, the average among its software industry peers is 6.87x, and the broader industry average sits at 5.35x. This shows Elastic is trading below its most direct competitors but slightly above the wider sector median. While high-growth companies often command premium multiples, those premiums come with expectations of strong future sales and manageable risk.

To assess whether this level is justified, Simply Wall St calculates a “Fair Ratio.” For Elastic, that figure is 6.89x. Unlike a simple peer comparison, the Fair Ratio factors in Elastic’s sales growth, profit profile, competitive position, and market capitalization, giving a more nuanced and forward-looking benchmark. With Elastic’s actual P/S multiple very close to its Fair Ratio, shares appear fairly valued on this basis.

Result: ABOUT RIGHT

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 Elastic Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives are a simple but powerful way to capture your perspective on a company by connecting the story you believe, your assumptions about Elastic’s future revenue and earnings, right through to your estimate of fair value.

Instead of relying solely on blanket ratios or forecasts, Narratives allow you to bridge what you know and believe about Elastic, such as future AI growth or market risks, to a personal financial outlook and a specific share price, all in a straightforward and accessible workflow.

On Simply Wall St’s platform, available to millions of investors via the Community page, you can build, compare, and refine these Narratives in minutes. As fresh news or results come out, Narratives are updated automatically, helping you stay in sync with the latest picture without manual spreadsheet tweaks.

Narratives make the buy or sell decision clearer by putting your Fair Value side by side with the latest Price, so you can judge if the stock’s current level matches the story you believe in.

For example, with Elastic, the most optimistic Narrative forecasts ongoing AI adoption and margin expansion, underlining a Fair Value of $143, while a more cautious view focused on rising competition and pricing pressure supports a Fair Value as low as $92. This demonstrates how much perspective influences valuation.

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