Is It Time To Reassess CDW (CDW) After Its 26% One-Year Share Price Decline?

• If you are wondering whether CDW is priced attractively today, it helps to step back and separate the share price story from the underlying value story.
• CDW closed at US$124.77, with a 1.3% gain over the last 7 days, a 1.3% decline over 30 days, a 6.3% decline year to date, and a 26.5% decline over the past year. The 3 and 5 year returns sit at 36.0% and 14.4% declines respectively.
• These moves have kept CDW on many investors' watchlists as they reassess how much risk they are taking on at current prices. Recent news coverage has largely focused on how IT spending trends and corporate technology budgets could influence companies like CDW, which helps frame how investors think about the stock's sensitivity to business demand.
• In this context, CDW currently holds a valuation score of 5/6, suggesting it screens as undervalued on most of Simply Wall St's checks. Next we will compare several valuation approaches before finishing with a broader way to think about what that score really means.

Find out why CDW's -26.5% return over the last year is lagging behind its peers.

Approach 1: CDW Discounted Cash Flow (DCF) Analysis

A DCF model takes estimates of the cash a company could generate in the future, then discounts those cash flows back to today to arrive at an estimate of what the business might be worth now.

For CDW, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is reported at about $1.07b. Analysts provide explicit Free Cash Flow estimates for the next few years, and Simply Wall St extends these with its own projections. By 2035, the extrapolated Free Cash Flow is around $1.53b, all expressed in $ and discounted back to today using the model's required return assumptions.

Putting those projections together, the DCF model arrives at an estimated intrinsic value of about $148 per share. Against the recent share price of $124.77, this implies an intrinsic discount of roughly 15.7%, which suggests the shares currently screen as undervalued on this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests CDW is undervalued by 15.7%. Track this in your watchlist or portfolio, or discover 45 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 CDW.

Approach 2: CDW Price vs Earnings

For a profitable company like CDW, the P/E ratio is a useful yardstick because it links what you pay for the shares to the earnings the business is currently generating. It is a quick way to see how the market is valuing each dollar of profit.

What counts as a “normal” or “fair” P/E depends on how investors view the company’s growth outlook and risk profile. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower one.

CDW currently trades on a P/E of 15.09x. That sits below the broader Electronic industry average of 27.20x and also below the peer group average of 17.96x. Simply Wall St’s Fair Ratio framework takes this a step further. It estimates what P/E could make sense for CDW after considering factors such as its earnings growth profile, profit margins, risk indicators, industry and market cap. For CDW, the Fair Ratio is 24.89x, which is well above the current 15.09x and suggests the shares screen as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your CDW Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page. Here you connect your view of CDW’s story to your own forecast for future revenue, earnings and margins, then translate that into a Fair Value you can compare with the current price. Narratives update as new news or earnings arrive and allow very different views to sit side by side, such as a more cautious CDW Narrative that points to a Fair Value of about US$142 per share and a more optimistic one closer to US$218 per share. This can help you decide what you think CDW is worth and whether today’s price lines up with your expectations.

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