Is It Too Late To Consider Lumentum Holdings After Its 294% AI Driven Surge?

• If you are wondering whether Lumentum Holdings is still worth buying after its huge run up, or if the real upside has already been priced in, you are in the right place.
• The stock has been on a tear, climbing 3.9% over the last week, 25.4% over the past month, 293.8% year to date, and an eye catching 296.3% over the last year, with longer term gains of 566.8% over 3 years and 243.0% over 5 years.
• Those moves have come as investors refocus on optical and photonics names tied to data center, AI infrastructure, and high speed networking demand. Lumentum is often mentioned alongside peers in discussions about backbone hardware for cloud and AI build outs. At the same time, sector rotation into higher growth tech has amplified price swings, making it important to separate narrative momentum from underlying value.
• Despite all that excitement, Lumentum currently scores 0/6 on our valuation checks, as shown by its valuation score. In the sections ahead we will unpack what that actually means using multiple valuation approaches, and then finish with a more holistic way to think about what the stock is really worth.

Lumentum Holdings scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

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

The Discounted Cash Flow model estimates what a stock should be worth by projecting the cash it can generate in the future and discounting those cash flows back to today. For Lumentum Holdings, the model used is a 2 Stage Free Cash Flow to Equity approach in $, which incorporates an initial high growth phase before fading to more stable growth.

On a trailing basis, Lumentum is actually burning cash, with last twelve month free cash flow of about $64 million in the red. Analysts, however, expect a sharp turnaround, with free cash flow projected to reach roughly $648 million by FY 2028. Beyond the formal analyst window, Simply Wall St extrapolates cash flows out to 2035, reaching an estimated $1.26 billion, and then discounts each year back to today to derive an intrinsic value.

That process results in an estimated fair value of about $234.13 per share. Compared with the current share price, the DCF implies the stock is roughly 44.0% overvalued, suggesting expectations have run well ahead of fundamentals.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lumentum Holdings may be overvalued by 44.0%. Discover 918 undervalued stocks or create your own screener to find better value opportunities.

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

Approach 2: Lumentum Holdings Price vs Sales

For growth oriented tech names that are still normalizing profitability, the Price to Sales ratio is often a more reliable yardstick than earnings based metrics, because revenue tends to be less volatile and less affected by one off items or margin swings. In general, faster growth and lower perceived risk justify a higher sales multiple, while slower growth or greater uncertainty should pull that multiple closer to, or below, the market norm.

Lumentum currently trades on a rich 13.0x Price to Sales ratio, well above the broader Communications industry average of about 1.8x and even above its high growth peer group, which averages roughly 7.2x. Simply Wall St also calculates a Fair Ratio of about 5.1x, which represents the sales multiple the stock might reasonably command after factoring in its expected growth, profitability profile, risk, industry positioning, and market cap.

This Fair Ratio framework is more informative than a simple peer or industry comparison, because it adjusts for company specific drivers rather than assuming all names deserve the same multiple. Measured against this 5.1x Fair Ratio, Lumentum’s current 13.0x Price to Sales suggests the stock is trading materially ahead of what its fundamentals would support.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1460 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lumentum Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple stories you create about a company that link your view of its future revenue, earnings, and margins to a financial forecast and, ultimately, to a fair value estimate.

On Simply Wall St’s Community page, used by millions of investors, Narratives let you explain why you think Lumentum’s AI optical demand will grow faster or slower than consensus, translate that view into projected financials, and instantly see what price you believe the stock is really worth.

From there, Narratives help you decide when to buy or sell by continuously comparing your Fair Value to the current share price. They update dynamically as new information such as earnings reports, guidance changes, or major news flows into the platform.

For example, one Lumentum Narrative might assume aggressive AI driven growth and higher long term margins, and justify a Fair Value near $255 per share. A more cautious Narrative could instead focus on customer concentration and competition risks to arrive at a Fair Value closer to $83, showing how different perspectives can coexist and guide different investment actions.

Do you think there's more to the story for Lumentum 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.

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