Graham Holdings (GHC) Valuation Check After Recent Share Price Weakness

Graham Holdings (GHC) has been drawing attention after recent share price moves, including a 1 day decline and mixed returns over the past month and past 3 months. These developments are prompting investors to reassess this diversified holding company.

See our latest analysis for Graham Holdings.

At a share price of US$1,069.64, Graham Holdings has seen pressure in the short term, with a 30 day share price return of an 8.74% decline. Longer term performance, reflected in an 18.24% 1 year total shareholder return and a 74.50% 3 year total shareholder return, points to earlier momentum that now appears to be easing.

If recent moves in Graham Holdings have you reassessing your options, it could be a good moment to broaden your search and look at 22 top founder-led companies.

With Graham Holdings trading at US$1,069.64 and an indicated intrinsic discount of 58%, investors are left with a key question: is this a genuine value opportunity, or is the market already pricing in future growth?

Preferred P/E of 6.4x: Is it justified?

On the numbers available, Graham Holdings is trading on a P/E of 6.4x, which sits well below both the US Consumer Services industry average of 17x and a peer average of 17.6x. With the last close at $1,069.64, that gap flags a valuation that is much lower than many similar businesses for the earnings it currently generates.

The P/E ratio tells you how much investors are paying for each dollar of current earnings, so it matters for a business like Graham Holdings that is already profitable. Here, the company pairs high quality earnings with net profit margins of 14.8%, compared with 4.8% last year, and earnings growth over the past year that is a very large multiple of its 5 year average growth rate of 13.4% per year.

For readers, the key question is whether the market is being cautious about how durable that earnings profile is, or whether it has been slow to reflect the company’s track record. Earnings grew by a very large amount over the past year, ahead of the Consumer Services industry’s 23.1%, yet the valuation multiple still sits at a steep discount to both industry and peer averages.

Result: Price-to-earnings of 6.4x (UNDERVALUED)

See what the numbers say about this price — find out in our valuation breakdown.

However, you still need to factor in risks such as the diversified mix of businesses and a 6.98% discount to the US$995 analyst price target.

Find out about the key risks to this Graham Holdings narrative.

Another View: DCF Points To A Very Different Price

While the 6.4x P/E suggests Graham Holdings is cheap relative to peers, our DCF model paints an even stronger picture, with a fair value estimate of $2,574.35 versus the current $1,069.64. That gap frames a large potential mispricing, but how confident are you in long term cash flow assumptions?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Graham Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 56 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this combination of low P/E and DCF upside has you curious rather than convinced, take a moment to review the numbers yourself and decide where you stand. Then check the 2 key rewards to see what the market is currently optimistic about.

Looking for more investment ideas?

If Graham Holdings has sharpened your instincts, do not stop here. Use the screener to hunt for other stocks that match the way you like to invest.

• Zero in on quality at a discount by reviewing our list of 56 high quality undervalued stocks that may suit a value focused approach.
• Prioritize resilience by scanning 80 resilient stocks with low risk scores that score well on downside protection and business stability checks.
• Get ahead of the crowd by checking our screener containing 23 high quality undiscovered gems that the wider market may not be watching yet.

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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