Should You Reconsider F5 After Its Recent 12.8% Drop?

If you’re trying to figure out what to do with F5 stock after its latest moves, you’re not alone. It’s had a wild ride recently, and right now, investors are split between seeing a window of opportunity or sensing elevated risk. In just the past week, F5 dropped by 12.8%, following a month that was down 9%. Still, zoom out from the short term, and the story gets interesting: F5 is up 18.9% year-to-date, up 37.8% across the past year, and an eye-popping 119.6% in five years. Clearly, the long-term momentum is there, but what’s really fueling these changes?

Much of the recent turbulence traces back to industry-wide shifts in tech demand and evolving security threats. These are the types of headlines that can jolt sentiment practically overnight. For F5, known for its application security and delivery solutions, this has meant being in the right place at the right time as organizations modernize infrastructure and tackle a steady stream of new challenges. While that turbocharges long-term optimism, it has also prompted investors to scrutinize whether its current valuation has gotten too far ahead of itself. On a valuation score, F5 racks up a 4 out of 6, which indicates it looks undervalued on the majority of the metrics that matter most, but not all of them.

How do those checks stack up, and which valuation approach is best for cutting through the noise? Let’s break down the most popular ways to measure what F5 is worth, and save the smartest perspective for last.

F5 delivered 37.8% returns over the last year. See how this stacks up to the rest of the Communications industry.

Approach 1: F5 Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is truly worth by projecting its future cash flows and then discounting those numbers back to today's dollars. This approach helps put a current value on what F5 is expected to earn in the future, making it a favorite for long-term investors.

According to the model, F5’s latest reported Free Cash Flow is $945.9 million. Analysts provide cash flow estimates out to 2028, forecasting moderate growth in the years ahead, with Free Cash Flow expected to reach $1.03 billion by 2028. Beyond that, projections are extended to give a sense of the company’s earning power up to 2035, still remaining in the billion-dollar range. All figures are in US dollars.

The resulting estimated intrinsic value from this DCF approach is $318.08 per share. Compared to the current share price, this suggests F5 is trading at a 5.9% discount to its fair value. The stock appears just a bit undervalued at today’s price.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for F5.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out F5's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: F5 Price vs Earnings

The Price-to-Earnings (PE) ratio is often the go-to metric for valuing profitable companies like F5 because it directly relates a company's stock price to its underlying earnings. For businesses that consistently generate profits, PE gives investors a quick sense of what they are paying for each dollar of current earnings, making it an intuitive tool for comparisons within and across industries.

When comparing PE ratios, it is important to factor in expectations for future growth and the risk profiles of companies. Higher growth rates or lower risk typically justify a higher PE, while slower growth or greater risk would call for a lower multiple. Right now, F5 trades at a PE of 25.8x, which is below both the industry average of 30.7x and beneath its peer group, which averages 88.0x. On the surface, this suggests the stock may be trading at a relative discount.

However, not all companies are created equal. This is why Simply Wall St’s proprietary “Fair Ratio” goes deeper. Unlike straightforward industry or peer comparisons, the Fair Ratio is tailored to F5’s specific profile. It accounts for earnings growth, margins, market cap, and even company-specific risks. For F5, the Fair Ratio comes out to 29.3x. With F5’s actual PE multiple at 25.8x, this signals the stock is a bit undervalued compared to what you would expect based on the company’s true quality and prospects.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your F5 Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative connects your view of F5’s story, highlighting where the business is headed and what could shape its future, with the financial numbers you think matter most, such as fair value estimates, projected revenues, and future margins. Narratives go beyond standard models by helping you tell your own story about F5 and see, in real time, how your assumptions play out compared to what the market is pricing in. You do not need a finance background to use them, as narratives are accessible via Simply Wall St’s Community page, used by millions of investors worldwide.

By browsing or creating Narratives, you can compare different fair values with the current share price to decide if you believe F5 is a buy, hold, or sell, and see how your outlook stacks up against others. Best of all, Narratives update dynamically when new earnings, news, or data arrive, keeping your perspective fresh. For example, some investors see enterprise cloud adoption driving F5’s fair value well above $390, while more cautious views that cite tougher software competition and slower growth peg its worth closer to $260, making it easy to compare optimism to skepticism at a glance.

Do you think there's more to the story for F5? 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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