Is It Too Late To Consider Argan (AGX) After Its Strong Multi Year Share Price Run?

• If you are wondering whether Argan's share price still reflects fair value after a strong run, it helps to step back and look at what the current market price might be implying about the business.
• Argan's stock has been strong recently, with returns of 16.4% over the last 7 days, 6.9% over 30 days, 25.8% year to date and 178.1% over the past year. The 3 year and 5 year figures are very large at roughly 10x and 8x respectively.
• Recent moves are playing out against a steady flow of company and industry updates that keep attention on Argan, including regular project announcements and contract wins in the capital goods space. These items help frame how investors are thinking about future workload, cash flows and the risks tied to large construction and engineering projects.
• Despite this backdrop, Argan's current valuation score on Simply Wall St is 0 out of 6, which means none of the six standard checks currently flag the shares as undervalued. Next we will walk through the main valuation approaches used, then finish with a different way to think about value that can round out these metrics.

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

Approach 1: Argan Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and then discounting those back to today to reflect the time value of money and risk.

For Argan, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is about $281.8 million. Analysts supply explicit forecasts for several years, including projected free cash flow of $166.3 million in 2029, and Simply Wall St extends those estimates further using its own extrapolations.

Pulling all of those yearly cash flows together and discounting them back to today gives an estimated intrinsic value of $183.49 per share. Compared with the current share price, this DCF implies the stock is 123.4% overvalued. In other words, the model points to a valuation that is well ahead of what the cash flow projections support.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Argan may be overvalued by 123.4%. Discover 53 high quality 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 Argan.

Approach 2: Argan Price vs Earnings

For a profitable company like Argan, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk in those earnings, and they often look for a lower P/E when growth is limited or earnings are more uncertain.

Argan currently trades on a P/E of 47.4x. That sits above both the Construction industry average of 38.3x and the peer group average of 40.8x. This indicates that the market is currently paying a higher price per dollar of earnings than it is for many similar companies.

Simply Wall St also provides a Fair Ratio of 35.8x. This is its proprietary estimate of what a more appropriate P/E might be, based on factors such as Argan's earnings growth profile, profit margins, risk characteristics, industry and market cap. That makes it a more tailored yardstick than simply lining the company up against broad industry or peer averages. Compared with this Fair Ratio, the current 47.4x P/E is higher, which points to the shares trading above this modelled fair level.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 23 top founder-led companies.

Upgrade Your Decision Making: Choose your Argan 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 build around a company that connect your view of its future revenue, earnings and margins to a financial forecast and then to a fair value that you can compare with today’s price.

On Simply Wall St’s Community page, Narratives are an easy tool used by millions of investors. You can set your own assumptions, see the implied fair value and then quickly judge whether a stock looks expensive or cheap relative to that number. Because the platform refreshes Narratives when new news or earnings arrive, your story and valuation can adjust as the facts change.

For Argan, for example, one investor narrative currently points to a fair value around US$284.68 per share while another sits closer to US$361.00. This shows how two people can look at the same company, plug in different expectations and end up with different yet clearly explained views of what the stock might be worth.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com