Does Otter Tail’s Recent Slide Signal Opportunity or Risk in 2025?

Thinking about what to do with Otter Tail shares? You’re not alone. The stock’s recent movements have left many investors weighing their options and wondering whether this utility powerhouse still has room to run. While there’s been a bit of short-term turbulence, with the stock down 3.3% over the past week and off 4.8% for the last month, stepping back reveals a very different picture. Year-to-date, the stock still sits up 10.1%, and if you’ve been holding for the long haul, you’re looking at returns of 38.8% over three years and 132.8% over five years. That kind of long-term strength is hard to ignore.

What’s fueling these moves? Broader shifts in the utility sector and changing market expectations have played a role, swinging the pendulum between growth optimism and caution about risk. But here’s where things get interesting: despite the recent dip, Otter Tail’s value score lands at 3 out of 6, meaning it’s currently considered undervalued on three major checks. That provides a solid foundation for a deeper look.

In the sections ahead, I’ll walk you through exactly how Otter Tail’s valuation stacks up using six key methods, followed by an even better way to make sense of whether the stock is truly a good buy waiting for you at the end of the article.

Why Otter Tail is lagging behind its peers

Approach 1: Otter Tail Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and then discounting them back to today's dollars. This approach helps investors determine whether a stock is trading below or above its intrinsic value.

For Otter Tail, the DCF model used is a two-stage Free Cash Flow to Equity calculation. The company’s latest reported Free Cash Flow stands at $105.8 Million, reflecting its operating performance over the last twelve months. Looking forward, analysts expect a significant decrease, projecting Free Cash Flow of just $0.0587 Million by 2026. Over the next decade, these forecasts predict a continued decline, with 2035’s discounted cash flow estimated at $0.0061 Million. The projections beyond 2026 are extrapolated to provide a longer-term perspective.

Based on this outlook, the DCF model estimates Otter Tail’s intrinsic fair value at just $0.0078 per share. This is dramatically lower than the current market price, indicating the stock is a massive 1,016,154.6 percent overvalued according to this method.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Otter Tail may be overvalued by 1016154.6%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Otter Tail Price vs Earnings

The Price-to-Earnings (PE) ratio is the preferred valuation metric for well-established, profitable companies like Otter Tail. This measure helps investors gauge how much the market is willing to pay today for a dollar of expected future earnings, making it especially relevant for utilities with steady profit streams.

What counts as a “normal” PE ratio can differ depending on expectations for future growth and perceived business risk. Fast-growing or lower-risk companies often justify higher PE multiples, while slower-growing or riskier firms typically trade at lower ratios. For Otter Tail, the current PE ratio stands at 11.7x, which is notably lower than both the electric utilities industry average of 21.1x and the peer group average of 23.6x.

Rather than only focusing on these broad comparisons, Simply Wall St also calculates a proprietary Fair Ratio. In this case, it is 11.9x. This benchmark takes into account not just industry norms, but also Otter Tail’s own earnings growth potential, profit margins, size, and specific risk factors. Because it blends all these company-specific traits into one number, the Fair Ratio offers a much more tailored sense of fair value compared to blanket industry or peer averages.

Since Otter Tail’s current PE of 11.7x is nearly identical to its Fair Ratio of 11.9x, the stock looks about right in terms of value based on earnings.

Result: ABOUT RIGHT

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 Otter Tail Narrative

Earlier we mentioned there's an even better way to understand valuation. Let's introduce you to Narratives. In simple terms, a Narrative is the story that links your view of a company's future with your own revenue, earnings, and margin assumptions to a fair value estimate, helping put numbers in context.

With Narratives, investors go beyond what the market or analysts say, connecting the company's big picture and trends to a dynamic forecast and a fair value that truly reflects their personal outlook. Available and easy to use on Simply Wall St's Community page (alongside millions of other investors), Narratives empower you to see whether Otter Tail's current price is above or below your own calculated fair value, making decisions about when to buy or sell more relevant to your conviction.

The real power of Narratives is that they are updated whenever new information arrives, so your insight adapts as the market moves, whether it is fresh news or quarterly earnings. For example, one investor's Narrative for Otter Tail might focus on regulatory costs and shrinking margins, arriving at a conservative forecast and a fair value of $83 per share. Another could see demand growth and cost leadership supporting strong margins, leading to a much higher estimate.

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