Is It Too Late To Consider Somnigroup International (SGI) After A 5-Year 164% Return?

• If you are wondering whether Somnigroup International at around US$88.62 is still good value after a strong run, you are not alone. This article focuses on what the current price could imply about the stock.
• The share price has returned 1.0% over the last 7 days, 37.2% over the past year and 112.9% over 3 years. The 30 day return of 4.4% and year to date return of 0.1% show that recent moves have been more muted.
• Recent news coverage around Somnigroup International has highlighted investor interest in the stock and its sector. This helps explain why the share price performance over 1, 3 and 5 years, at 164.6% over 5 years, stands out against shorter term moves. This mix of attention and past returns has brought the valuation into sharper focus for many investors.
• Despite that, Somnigroup International currently has a value score of 0 out of 6. Next we will look at what different valuation approaches suggest about the current price, and then finish by looking at a broader way to think about valuation altogether.

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

Approach 1: Somnigroup International Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and discounting them back to a present value.

For Somnigroup International, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The company’s last twelve month Free Cash Flow is around $606.2 million. Analysts have provided specific forecasts up to 2030, with projected Free Cash Flow of $1,292 million in that year, and Simply Wall St extrapolates further years to create a full 10 year path of cash flows, all in $.

When these projected cash flows are discounted back, the model arrives at an estimated intrinsic value of about $87.95 per share. Compared with the current share price of roughly $88.62, this implies Somnigroup International is about 0.8% overvalued, which is effectively a very small gap.

In other words, the DCF suggests the stock is trading very close to what the cash flow projections support.

Result: ABOUT RIGHT

Somnigroup International is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Somnigroup International.

Approach 2: Somnigroup International Price vs Earnings

For a profitable company like Somnigroup International, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Investors typically accept a higher P/E if they expect stronger growth or see the earnings as relatively resilient, and a lower P/E if growth prospects or risks look less attractive.

Somnigroup International currently trades on a P/E of 48.43x. That compares with a Consumer Durables industry average P/E of 13.10x and a peer group average of 17.68x, so the stock is priced at a much higher multiple than both its sector and peers. Simply Wall St also calculates a proprietary “Fair Ratio” for the P/E, which for Somnigroup International is 24.34x.

The Fair Ratio is designed to be a more tailored benchmark than simple peer or industry comparisons, as it incorporates factors such as earnings growth, profit margins, risk profile, market cap and industry characteristics. When you compare the current P/E of 48.43x to this Fair Ratio of 24.34x, the share price implies a materially richer multiple than that model would suggest.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 22 top founder-led companies.

Upgrade Your Decision Making: Choose your Somnigroup International Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St's Community page you can use Narratives to link your view of Somnigroup International's story to a set of revenue, earnings and margin forecasts, compare the resulting Fair Value to the current price to help decide whether to buy or sell, and see that this Fair Value refreshes when new information such as news or earnings arrives. One investor might build a Narrative that leans into merger synergies, Sleeptracker-AI, international growth and a Fair Value closer to the higher analyst target of US$93.00. Another investor might focus more on risks like softer Q4 demand, supply chain pressures and digital competition and end up nearer the lower analyst target of US$73.00, with both perspectives sitting side by side on the platform so you can choose which story fits what you believe.

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