Is Teradata (TDC) Offering An Opportunity After Its Recent Share Price Pullback

• If you are wondering whether Teradata at US$26.02 is priced attractively or already reflects the story you are buying into, this article walks through what the market might be saying about value.
• The share price is up 26.9% over the past year, even though the year to date move sits at a 12.4% decline. This can change how you think about both upside and risk.
• Recent coverage has focused on Teradata's role in data and analytics software and how the company is positioned in a competitive software market. This context helps explain why the stock has seen mixed shorter term returns, including a 0.3% gain over 7 days and a 2.1% decline over 30 days, alongside a weaker 3 year and 5 year track record.
• Teradata currently scores a 5 out of 6 valuation score. The sections that follow look at how different methods arrive at that result, before finishing with a way to think about valuation that goes beyond the usual checks.

Teradata delivered 26.9% returns over the last year. See how this stacks up to the rest of the Software industry.

Approach 1: Teradata Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes the cash Teradata is expected to generate in the future and then discounts those projections back to today using a required rate of return, giving an estimate of what the business might be worth per share right now.

For Teradata, the model starts with last twelve month free cash flow of about $284.1 million and uses a 2 Stage Free Cash Flow to Equity approach. Analyst estimates and extrapolations suggest free cash flow could be $356.0 million in 2028, with a set of annual projections running out to 2035, all converted into today’s dollars.

Adding up those discounted cash flows gives an estimated intrinsic value of $63.55 per share. Compared with the current share price of $26.02, the DCF output implies a 59.1% discount, which points to the stock trading well below this model’s estimate of underlying value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Teradata is undervalued by 59.1%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

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

Approach 2: Teradata Price vs Earnings

For a profitable company like Teradata, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. It quickly shows how the market is pricing the business relative to its profitability.

What counts as a “normal” or “fair” P/E depends on how the market sees a company’s growth potential and risk. Higher expected growth and lower perceived risk can justify a higher P/E, while lower growth expectations or higher uncertainty usually align with a lower P/E.

Teradata currently trades on a P/E of 18.9x. That is below the Software industry average of about 28.0x and below the broader peer group average of 32.3x. Simply Wall St’s Fair Ratio for Teradata is 26.3x. This is a proprietary estimate of what P/E might be reasonable given factors such as earnings growth profile, industry, profit margins, market cap and company specific risks. Because it blends all of these inputs, the Fair Ratio can be more tailored than a simple comparison against industry or peer averages.

Comparing Teradata’s current P/E of 18.9x with the Fair Ratio of 26.3x suggests the shares are trading below this model’s estimate of a fair earnings multiple.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 18 top founder-led companies.

Upgrade Your Decision Making: Choose your Teradata Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and on Simply Wall St that shows up as Narratives. You pick or create a story about Teradata, link that story to specific revenue, earnings and margin forecasts, and end up with a Fair Value you can compare to the current US$26.02 share price to help you decide whether to buy, sell or hold.

On the Community page, Narratives are set up as simple, accessible story-plus-numbers packages. They update automatically when new information like earnings, guidance or news is added, so your Fair Value line keeps moving with the data rather than staying frozen at one point in time.

For Teradata, one investor might align with the higher-end analyst view that supports a Fair Value of US$49.00, while another might lean toward a more cautious view that lines up with a Fair Value of US$21.00. Narratives let you see both stories side by side, understand the assumptions behind each, and decide which one fits closest to your own expectations before you act.

For Teradata, here are previews of two leading Teradata Narratives to make the comparison easier:

🐂 Teradata Bull Case

Fair value: US$35.73

Implied discount to this fair value: 27.2%

Revenue growth assumption: 86.6%

• Analysts link Teradata’s cloud neutral data platform and AI focused product set to a larger opportunity in high value workloads and recurring revenue.
• Margin expansion is tied to higher recurring revenue, tighter cost control and benefits from recent organizational changes.
• Partnerships with major technology vendors and data integration providers are a key part of the thesis around long term relevance and earnings power.

🐻 Teradata Bear Case

Fair value: US$21.00

Implied downside to this fair value: 23.0%

Revenue growth assumption: 2.0% decline

• Bearish analysts focus on the risk that hyperscalers and open source tools continue to pull workloads away from Teradata and pressure its market share.
• Pricing pressure and a legacy perception are seen as headwinds for both margins and customer retention over the next few years.
• The case assumes lower earnings in the future, with a view that Teradata may need a higher P/E to support even this reduced profit profile.

Both viewpoints use the same current share price of US$26.02 but reach very different conclusions about fair value. Comparing them side by side can help you decide which set of assumptions feels closer to your own expectations before making any moves on the stock.

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Teradata on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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