Is Dolby Laboratories (DLB) Pricing Reflect Its Potential After Multi Year Share Price Slump

• If you are wondering whether Dolby Laboratories' current share price reflects its true worth, you are not alone. This article is built to help you frame that question clearly.
• The stock closed at US$64.82, with returns of 3.7% over the last 30 days but a 20.7% decline over the past year and a 28.0% decline over five years, which may have changed how some investors view its risk and reward trade off.
• Recent coverage has focused on Dolby Laboratories' role in audio and visual technologies across entertainment and media, with ongoing interest in how its licensing model supports its position in cinemas, streaming, and consumer devices. That context around its technology footprint and partnerships helps explain why the market continues to reassess the stock at different points.
• Based on our checks, Dolby Laboratories scores a 4 out of 6 valuation score. This suggests several areas where the share price and fundamentals may not fully line up. Next we will look at traditional valuation tools while also pointing you toward an even richer way to think about value at the end of the article.

Find out why Dolby Laboratories's -20.7% return over the last year is lagging behind its peers.

Approach 1: Dolby Laboratories Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth today by projecting its future cash flows and then discounting those back to a present value.

For Dolby Laboratories, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $386.6 million. Analyst inputs and extrapolated estimates suggest Free Cash Flow reaching around $752.3 million in 2035, with intermediate projections such as $412.9 million in 2026 and $547.9 million in 2028, all expressed in dollars.

When those projected cash flows are discounted back using this model, the estimated intrinsic value is about $113.61 per share. Compared with the recent share price of $64.82, the DCF points to an implied discount of roughly 42.9%, which indicates the stock screens as undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Dolby Laboratories is undervalued by 42.9%. 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 Dolby Laboratories.

Approach 2: Dolby Laboratories Price vs Earnings

For a profitable company like Dolby Laboratories, the P/E ratio is a useful shorthand for how much you are paying for each dollar of earnings. Higher growth expectations and lower perceived risk usually support a higher P/E, while slower growth or higher risk tend to justify a lower multiple.

Dolby currently trades on a P/E of about 25.7x. That sits close to the broader Software industry average of 25.8x and is below the peer group average of 28.6x. On those simple comparisons, the shares do not look aggressively priced relative to similar businesses.

Simply Wall St also calculates a “Fair Ratio” of 25.2x for Dolby. This is a proprietary estimate of what Dolby’s P/E might be, given factors such as its earnings profile, industry, profit margins, market cap and risk characteristics. Because it incorporates these company specific inputs rather than just comparing against broad industry or peer averages, the Fair Ratio can give you a more tailored sense of whether the current multiple is stretched or conservative.

With Dolby’s actual P/E of 25.7x sitting close to the Fair Ratio of 25.2x, the shares screen as being priced roughly in line with those fundamentals on this metric.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Dolby Laboratories Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which let you attach a clear story about Dolby Laboratories to the numbers you see, by linking your view of its business, a financial forecast, and then a fair value that you can compare with the current share price.

On Simply Wall St’s Community page, Narratives are an easy tool used by millions of investors. Each Narrative spells out assumptions for future revenue, earnings and margins, and converts them into a fair value estimate that updates automatically as new information such as earnings reports or news is added.

For Dolby, one investor might build a cautious Narrative that lines up with a fair value of about US$68.00, while another might hold a more optimistic Narrative closer to US$114.00. By comparing each of those fair values with the latest market price, you can decide for yourself whether the stock looks expensive or cheap relative to the story you believe.

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