Is It Time To Reconsider Waters (WAT) After The Recent Share Price Slide?

• Wondering if Waters at around US$323 per share is starting to look like value, or if the recent weakness is telling you to stay patient.
• The stock has pulled back with a 15.2% decline over the last 7 days and a 16.5% decline over the last 30 days, leaving year to date returns at a 15.3% decline and the 1 year return at a 12.5% decline.
• These moves have brought fresh attention to how the market is currently pricing established life sciences names like Waters and whether recent sentiment shifts are justified. With the share price still above its 3 year return of a 1.6% decline but well below its 5 year return of 14.8%, many investors are reassessing what they are willing to pay for the business.
• On our checklist, Waters scores a 2 out of 6 valuation score, which suggests some areas may look attractive while others do not. Next, we will walk through the usual valuation methods you might use and then finish with a way of looking at value that can give you a more complete picture.

Waters scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Waters Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes the cash that a business is expected to generate in the future, then discounts those cash flows back to today to estimate what the company might be worth now.

For Waters, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $507.6 million. Analyst projections and subsequent extrapolations suggest Free Cash Flow rising to $1,758 million by 2029, with further estimated figures out to 2035 based on Simply Wall St assumptions.

Bringing all of those projected cash flows back to today results in an estimated intrinsic value of about $378.83 per share. Compared with the recent share price of around $323, the DCF output implies the stock is 14.6% undervalued according to this model.

For investors who lean on cash flow based analysis, Waters currently appears to be trading at a discount to this DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Waters is undervalued by 14.6%. 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 Waters.

Approach 2: Waters Price vs Earnings

For a profitable company like Waters, the P/E ratio is a useful way to gauge what the market is willing to pay for each dollar of earnings. Higher growth expectations or lower perceived risk usually justify a higher P/E, while slower expected growth or higher risk often line up with a lower, more conservative P/E.

Waters currently trades on a P/E of 49.35x. That sits above the Life Sciences industry average of 34.85x and the peer group average of 27.54x. In other words, the market is assigning a higher multiple than these broad benchmarks.

Simply Wall St’s Fair Ratio for Waters is 26.99x. This is a proprietary estimate of what P/E might make sense for the company, taking into account its earnings growth profile, profit margins, industry, market cap and risk factors, rather than just comparing it with a simple industry or peer average. Because it is tailored to Waters’ own characteristics, it can give you a more company specific reference point.

Against that Fair Ratio of 26.99x, the current P/E of 49.35x is higher. This points to Waters looking expensive on this earnings based measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Waters Narrative

Earlier we mentioned that there is an even better way to think about valuation, so this is where Narratives come in, giving you a simple story behind your numbers. You set your view on Waters’ future revenue, earnings and margins, link that to a financial forecast, then to a fair value, and compare it with today’s price using an easy tool on Simply Wall St’s Community page that automatically refreshes when new information arrives.

With Waters, for example, one investor might align with the more cautious view that ties together a fair value around US$349 per share, modest revenue growth assumptions and a lower future P/E. Another might lean toward the more optimistic view that points to a fair value around US$480 per share with higher growth and a higher future P/E. Narratives help you see exactly which story you agree with and how that translates into your own sense of when the gap between fair value and price looks interesting.

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