Is Credo Technology Group Holding (CRDO) Pricing In Too Much After Its 101% One Year Surge

• If you are wondering whether Credo Technology Group Holding is priced attractively after its big run, this article will walk through what the current share price might imply about future expectations.
• The stock most recently closed at US$123.46, with returns of a 3.5% decline over 7 days, a 3.6% decline over 30 days, a 13.8% decline year to date, and a 101.4% gain over the past year, while its return over three years is very large.
• Recently, Credo has been in the news as investors track its position in semiconductors and related connectivity solutions. This helps frame how the market is thinking about its future prospects and risk profile, and this broader attention provides useful context for assessing whether the current share price lines up with the underlying business.
• Simply Wall St currently gives Credo a value score of 0 out of 6. Next we will look at what that means across different valuation approaches, before finishing with a way to assess value that goes beyond any single model.

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

Approach 1: Credo Technology Group Holding Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business might be worth by projecting the cash it could generate in the future and then discounting those cash flows back to today.

For Credo Technology Group Holding, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $119.7 million. Analysts provide explicit free cash flow estimates for the coming years, and Simply Wall St then extrapolates further out, with projected free cash flow reaching about $1.1b by 2035 in the extended forecast period. All figures are in US$, and values above $1b are treated as billions.

Based on these projections, the DCF model arrives at an estimated intrinsic value of about $79.08 per share, compared with the recent share price of $123.46. That gap implies the stock is about 56.1% above the model’s estimate of fair value, which suggests the current price embeds very optimistic expectations.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Credo Technology Group Holding may be overvalued by 56.1%. Discover 51 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 Credo Technology Group Holding.

Approach 2: Credo Technology Group Holding Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. This makes it a natural check alongside a DCF model. What counts as a reasonable P/E depends on how the market views a company’s growth potential and risk, with higher expected growth or lower perceived risk usually supporting a higher multiple.

Credo Technology Group Holding currently trades on a P/E of 105.2x. That is well above the Semiconductor industry average of 43.3x and also above the peer group average of 65.6x. To refine that comparison, Simply Wall St uses a proprietary “Fair Ratio” that estimates what P/E might make sense given factors such as Credo’s earnings growth profile, industry, profit margins, market cap and risk characteristics. This tailored Fair Ratio is 76.2x for Credo.

Because the Fair Ratio is designed to reflect Credo’s own fundamentals rather than a broad group of companies, it can be a more precise yardstick than simple peer or industry averages. Comparing the current P/E of 105.2x with the Fair Ratio of 76.2x indicates that the shares are trading materially above this custom benchmark.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Credo Technology Group Holding Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, which let you set out your own story for Credo Technology Group Holding by linking assumptions about future revenue, earnings and margins to a forecast and fair value, then comparing that with the current price to decide whether the stock looks attractive or expensive relative to your view.

For Credo Technology Group Holding, here are previews of two leading Credo Technology Group Holding Narratives to make comparison easier:

🐂 Credo Technology Group Holding Bull Case

Fair value in this narrative: US$208.38 per share

Implied undervaluation vs last close: around 40.8% below this fair value

Revenue growth assumption: 51.32% per year

• This view leans on strong secular demand for AI data center connectivity, with Credo positioned to benefit through its Ethernet, PCIe and SerDes IP portfolio.
• Analysts in this camp build in rising profit margins and higher long term earnings, while still using a discount rate of just over 10% to keep those cash flows grounded.
• The fair value sits well above the recent US$123.46 share price, so the gap comes down to whether you agree that revenue, margins and P/E can reach the levels embedded in their model.

🐻 Credo Technology Group Holding Bear Case

Fair value in this narrative: US$117.68 per share

Implied overvaluation vs last close: around 4.9% above this fair value

Revenue growth assumption: 41.76% per year

• This view puts more weight on risks such as customer concentration, geopolitical exposure and hyperscalers developing more connectivity solutions in house.
• Even with solid revenue and margin assumptions, the required future P/E is lower, which pulls the fair value closer to the low end of current analyst targets.
• Because this fair value sits a little below the recent US$123.46 share price, it is likely to appeal more if you are cautious about how much growth and multiple expansion the market is already pricing in.

If you want to see how other investors are weighing these trade offs around growth, margins and risk, Curious how numbers become stories that shape markets? Explore Community Narratives and see how your own view on Credo Technology Group Holding compares.

Do you think there's more to the story for Credo Technology Group Holding? 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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