GoDaddy Shares Surge 3% After Positive Cash Flow Outlook Spurs Investor Interest

Thinking about what to do with GoDaddy stock? You are not alone. With plenty of noise in the market and tech shares moving every which way, it is easy to wonder if now is the time to buy, hold, or move on. GoDaddy, known for its dominance in website services, has been catching the eyes of investors lately for a few good reasons.

While the company’s one-year total return has dipped by 11%, it is important to zoom out. GoDaddy stock is up more than 82% over the last three years, and nearly 74% over the past five. These long-term gains suggest robust growth potential in spite of the more recent pullback. In just the past week, shares nudged up over 3%, signaling that some investors might be sensing an opportunity. Meanwhile, the stock’s current price is trading at a 33% discount to analyst targets and 44% below some models of its intrinsic value. A value score of 6 out of 6 indicates that GoDaddy passes every undervaluation check in the book.

The market certainly appears to be reassessing the company’s growth and risk profile. Possible reasons include renewed optimism about SaaS growth, stronger annual revenue and net income figures, or recent broader market shifts that affect tech stocks overall. With these signals in mind, let us dive into the specifics of GoDaddy’s valuation by examining the methods analysts use and why some approaches offer far more insight than others.

GoDaddy delivered -11.3% returns over the last year. See how this stacks up to the rest of the IT industry.

Approach 1: GoDaddy Cash Flows

The Discounted Cash Flow (DCF) model is a popular method for valuing companies by projecting their future free cash flows and discounting them back to today’s dollars. This approach helps estimate what GoDaddy’s shares should be worth based on realistic expectations about its ability to generate cash over time.

Looking at the numbers, GoDaddy’s latest twelve months free cash flow stands at $1.43 billion. Analysts expect this cash flow to continue growing, reaching $2.3 billion by 2029. Over the next decade, projections remain positive, with annual estimates increasing each year. This reflects confidence in the company’s underlying business strength.

Based on these projections and discounting future cash flows to present value, the DCF model estimates GoDaddy’s fair intrinsic value at $257 per share. In comparison to the current share price, this model suggests GoDaddy is trading at a 43.8% discount. In other words, the stock appears significantly undervalued by the market at this time.

Result: UNDERVALUED

Our DCF analysis suggests GoDaddy is undervalued by 43.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: GoDaddy Price vs Earnings

The price-to-earnings (PE) ratio is a well-regarded metric for valuing profitable companies like GoDaddy, as it links the company’s current share price to its earnings per share. A reasonable PE ratio takes into account the company’s past performance, future growth prospects, and associated risks. In general, higher expected growth or lower risk can justify a higher PE, while slower growth or higher risk push it lower.

GoDaddy’s current PE ratio stands at 24.8x. For context, the IT industry average is 29.7x, while GoDaddy’s peers average a notably higher 55.7x. This indicates that the market currently assigns a somewhat lower valuation to GoDaddy compared to its counterparts, possibly reflecting some conservatism regarding its growth outlook or perceived risk.

To put these numbers into perspective, Simply Wall St’s proprietary Fair Ratio for GoDaddy is 34.9x. This metric considers factors such as earnings growth, industry benchmarks, profitability, company size, and risk to estimate an optimal multiple for the stock. Since GoDaddy’s actual PE ratio is roughly 10 points below this fair level, the stock appears undervalued on this basis and may offer an attractive entry point if earnings continue to grow as projected.

Result: UNDERVALUED

PE 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 GoDaddy Narrative

A Narrative is a simple, yet powerful, way to connect your perspective on a company, such as GoDaddy, to a story supported by your fair value and forecasts for future revenue, earnings, and margins.

By building a Narrative, you link the company’s business story to a financial forecast and from there to a projected fair value, turning the numbers into a living, dynamic investment thesis.

Narratives are easy to create and use, especially within the Simply Wall St platform, where millions of investors refine their perspectives and compare different stories side by side.

They help you decide when to buy or sell by instantly comparing your calculated fair value with the current share price, so you know if the market aligns with your expectations or not.

What truly sets Narratives apart is that they are updated automatically whenever new data such as earnings reports or news is released, so your view always keeps pace with reality.

• For example, some investors have a bullish GoDaddy Narrative based on projections of $5.9 billion in revenue and a $250 fair value, while others see risks that suggest only $991 million in earnings and a $150 fair value. Each approach leads to different buy or sell decisions.

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