Is Lumentum Holdings (LITE) Pricing Too Much Growth After Its Recent 40% Weekly Surge

• If you are wondering whether Lumentum Holdings is still reasonably priced after a strong run, this article walks through what the current share price might be implying about its value.
• The stock most recently closed at US$551.99, with returns of 40.9% over 7 days, 57.1% over 30 days and 43.0% year to date, while the 1 year and 3 year returns are very large on a percentage basis.
• These moves sit alongside recent attention on the company in broader market coverage and ongoing interest in its position within the technology sector. Together, those themes help frame why the share price has shifted and set the scene for a closer look at what investors might be paying for today.
• Our valuation model gives Lumentum Holdings a 2 out of 6 score for potential undervaluation. Next, we look at how different valuation methods line up, then finish with a more rounded way to think about value that goes beyond the headline numbers.

Lumentum Holdings scores just 2/6 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

A Discounted Cash Flow model estimates what a business might be worth by projecting its future cash flows and then discounting them back to today, using a required rate of return.

For Lumentum Holdings, the model used here is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow figure is a loss of $3.19 million, so the story is less about recent cash generation and more about what future cash flows could look like.

Analyst based projections, combined with Simply Wall St extrapolations, point to free cash flow reaching $4,721.76 million in 2035. Across the ten year path, the model uses explicit annual estimates up to 2028, then extends those out using estimated growth rates, all expressed in US$.

Bringing those projected cash flows back to today gives an estimated intrinsic value of about $853.82 per share. Compared with the current share price of $551.99, the DCF output implies the stock is 35.4% undervalued on these assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lumentum Holdings is undervalued by 35.4%. Track this in your watchlist or portfolio, or discover 52 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 Lumentum Holdings.

Approach 2: Lumentum Holdings Price vs Sales

For companies where investors are focused on revenue potential and the earnings profile is less central, the P/S ratio is often a useful way to think about what you are paying for each dollar of sales. It lets you compare businesses even when profitability, capital intensity or accounting choices make earnings hard to compare directly.

In general, higher growth expectations and lower perceived risk can support a higher “normal” P/S multiple, while slower growth or higher risk usually points to a lower one. Lumentum Holdings currently trades at a P/S of 18.72x. That sits well above the Communications industry average of 1.99x and the peer average of 7.97x, which indicates the market is assigning a much higher value to its revenue base than to many peers.

Simply Wall St’s Fair Ratio metric for Lumentum, at 10.27x, is designed to adjust for factors like expected earnings growth, profit margins, industry, market cap and specific risks. Because it incorporates those elements directly, it can be more informative than a simple comparison with the industry or peer average. Lumentum’s current 18.72x P/S is significantly higher than the 10.27x Fair Ratio. This indicates the shares are trading at a richer multiple than those fundamentals might typically support.

Result: OVERVALUED

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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 simply your story about a company linked directly to your assumptions for fair value, future revenue, earnings and margins.

On Simply Wall St’s Community page, used by millions of investors, a Narrative is an easy tool that connects what you believe about Lumentum Holdings to a financial forecast and then to a fair value estimate that you can compare with the current share price to help inform your decision on whether to buy, hold or sell.

Because Narratives on the platform update automatically when new information such as news or earnings is released, the fair value you are using stays in sync with what is happening, so you can respond to changes without rebuilding your whole view from scratch.

For example, one Lumentum Holdings Narrative might assume very strong revenue and margins and therefore a relatively higher fair value, while another might assume slower revenue, tighter margins and a relatively lower fair value. Both can be viewed side by side so you can see how different perspectives compare with today’s price.

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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