Is It Time To Reassess Corpay (CPAY) After Mixed Share Price Performance?

• If you are wondering whether Corpay at around US$337.12 is a bargain or a stock to be cautious about, you will want to look closely at what today’s price actually implies about its value.
• The share price performance has been mixed, with a 4.8% decline over the last 7 days, a 2.9% gain over the last 30 days, a 12.2% return year to date, and a 10.7% decline over the past year, while the 3 year and 5 year returns sit at 57.8% and 23.3% respectively.
• Recent coverage of Corpay has focused on its position in diversified financial services and how investors are reassessing the stock after those uneven return numbers across different time frames. This context is important because it suggests the market is still forming a view on what a fair price looks like.
• On our simple 6 point valuation framework, Corpay scores a 3 out of 6. Next, we will unpack what that means by looking at different valuation approaches before finishing with a way to think about valuation that goes beyond just the numbers.

Find out why Corpay's -10.7% return over the last year is lagging behind its peers.

Approach 1: Corpay Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to earn above the return that equity investors typically require, and then converts those excess profits into an estimate of what the shares could be worth today.

For Corpay, the model starts with a Book Value of $55.98 per share and a Stable EPS estimate of $31.54 per share, based on weighted future Return on Equity estimates from 5 analysts. That implies an Average Return on Equity of 33.52% on a Stable Book Value of $94.10 per share, which is based on weighted future Book Value estimates from 4 analysts.

The required return for shareholders, or Cost of Equity, is set at $7.56 per share. The difference between this and the Stable EPS gives an Excess Return of $23.98 per share, which is then projected forward and discounted back to reach an intrinsic value estimate.

On this Excess Returns view, Corpay's intrinsic value is estimated at about $612.76 per share, compared with a current share price around $337.12, implying the stock is 45.0% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Corpay is undervalued by 45.0%. Track this in your watchlist or portfolio, or discover 53 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 Corpay.

Approach 2: Corpay Price vs Earnings

For profitable companies like Corpay, the P/E ratio is a useful shorthand for how much investors are currently paying for each dollar of earnings. It ties the share price directly to the company’s ability to generate profit, which is usually what ultimately matters most to shareholders.

In general, higher expected earnings growth and lower perceived risk can justify a higher P/E ratio, while lower growth and higher risk tend to support a lower, more conservative P/E. So, a “normal” or “fair” P/E is rarely one fixed number; it depends on what investors expect and how confident they feel about those expectations.

Corpay currently trades on a P/E of 22.04x. This sits above the Diversified Financial industry average P/E of 16.02x, but below the peer group average of 41.83x. Simply Wall St’s Fair Ratio for Corpay is 19.88x, which is their estimate of an appropriate P/E once factors such as earnings growth, industry, profit margins, market cap and company specific risks are considered.

The Fair Ratio can be more useful than a simple industry or peer comparison because it adjusts for those company specific drivers rather than assuming all firms in a sector should trade on similar multiples. With Corpay’s actual P/E at 22.04x versus a Fair Ratio of 19.88x, the shares screen as slightly expensive on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Corpay Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce Narratives, which simply means you pair your view of Corpay’s story with your own assumptions for future revenue, earnings and margins. You then link that story to a forecast and a fair value on Simply Wall St’s Community page. Next, you compare that fair value to today’s price, with the system updating automatically as new news or earnings arrive and different investors arriving at very different fair values, such as around US$350.44 or roughly US$361.23, depending on how they see Corpay’s future playing out.

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