Is It Too Late To Reassess LyondellBasell (LYB) After Its Rapid Share Price Rally

• If you are wondering whether LyondellBasell Industries is still attractively priced after recent moves in the share price, you are not alone.
• The stock last closed at US$67.11, with returns of 16.7% over the past 7 days, 17.5% over 30 days and 51.2% year to date, while the 1 year, 3 year and 5 year returns stand at a 3.7% decline, 7.6% decline and 13.0% decline respectively.
• Recent news around LyondellBasell has focused on the business and the broader chemicals sector, offering useful context for these mixed short and longer term returns. This backdrop helps frame the question of whether the current share price reflects the company’s fundamentals or if sentiment is doing more of the heavy lifting.
• On Simply Wall St’s valuation model, LyondellBasell scores 5 out of 6 on its value checks. This suggests there is plenty to unpack using different valuation approaches, and we will also come back at the end to a broader way of thinking about what this score really means for long term investors.

Find out why LyondellBasell Industries's -3.7% return over the last year is lagging behind its peers.

Approach 1: LyondellBasell Industries Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s value to estimate what the business might be worth right now.

For LyondellBasell Industries, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $628.7 million. Analysts provide explicit estimates for the next few years. Beyond that, Simply Wall St extrapolates cash flows, with projections for free cash flow reaching the low to mid single digit billions of dollars over the next decade, for example a projected $1,633.4 million in 2028 and $3,572.6 million in 2035.

Bringing all of those projected cash flows back to today using a discount rate, the DCF model arrives at an estimated intrinsic value of about $122.27 per share. Against the recent share price of $67.11, this implies the stock is 45.1% undervalued on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests LyondellBasell Industries is undervalued by 45.1%. Track this in your watchlist or portfolio, or discover 50 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 LyondellBasell Industries.

Approach 2: LyondellBasell Industries Price vs Sales

For companies that are established and generating meaningful revenue, the price to sales, or P/S, ratio is a straightforward way to gauge how much you are paying for each dollar of sales. It can be especially useful when earnings are affected by one off items or cyclicality, because it focuses on the top line rather than net income.

What investors see as a “normal” P/S ratio typically reflects expectations for future growth and the level of risk. Higher expected growth or perceived lower risk often comes with a higher multiple, while slower growth or higher risk usually points to a lower one.

LyondellBasell Industries currently trades on a P/S ratio of 0.72x. That sits below the Chemicals industry average of 1.15x and also below the peer group average of 0.80x. Simply Wall St’s Fair Ratio for LyondellBasell, based on factors like its growth profile, industry, profit margins, market size and risk, is 1.03x. This Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for the company’s specific fundamentals rather than assuming all businesses in the sector deserve the same multiple. On this basis, the current 0.72x P/S suggests the shares are trading below that Fair Ratio.

Result: UNDERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 20 top founder-led companies.

Upgrade Your Decision Making: Choose your LyondellBasell Industries Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to a set of numbers like your view of fair value and your expectations for future revenue, earnings and margins.

On Simply Wall St’s Community page, Narratives are an easy tool that help you link LyondellBasell Industries’ story to a financial forecast and then to a fair value. You can compare that fair value to the current share price and decide whether you see the stock as priced above or below your own estimate.

Because Narratives on the platform update automatically when new information such as news or earnings is added, your story and numbers stay aligned without extra work from you.

For LyondellBasell, one investor might build a more cautious Narrative around a fair value of US$38 per share, while another might lean into a more optimistic Narrative closer to US$86.92 per share. Seeing those side by side can help you decide which story, and which set of assumptions, you find more reasonable.

For LyondellBasell Industries however we'll make it really easy for you with previews of two leading LyondellBasell Industries Narratives:

🐂 LyondellBasell Industries Bull Case

Fair value in this bullish Narrative: US$86.92 per share

Implied discount to this fair value at US$67.11: about 22.8%

Assumed revenue trend: 5.1% annual decline over the next 3 years

• Backers of this view are leaning on aggressive cost cuts, portfolio streamlining and advanced recycling projects to support higher margins and stronger free cash flow.
• The Narrative assumes profit margins rise from 0.4% to 10.5% and earnings reach US$3.5b by around 2028, with the shares trading on a 10.1x P/E at that point, below the current US Chemicals industry P/E of 25.9x.
• To agree with this case, you would need to be comfortable with revenue of about US$33.1b and an 8.8% discount rate supporting a fair value of US$86.92, while also accepting that analysts see a wide range of outcomes, from US$44 to US$90.

🐻 LyondellBasell Industries Bear Case

Fair value in this bearish Narrative: US$38.00 per share

Implied premium to this fair value at US$67.11: about 76.6%

Assumed revenue trend: 3.2% annual decline over the next 3 years

• This view leans on pressure from tighter sustainability rules, alternative materials and potential oversupply in chemicals, which together keep a lid on long term demand and pricing for traditional products.
• The Narrative assumes revenue of about US$25.7b and earnings of US$1.6b by around 2028, with margins improving to 6.2% and the stock valued on an 11.1x P/E using an 8.8% discount rate.
• To agree with this case, you would need to see today's price as richer than what those earnings and margins justify, even though analysts in this camp still factor in some improvement in the underlying business.

Both Narratives use many of the same building blocks, but they tell very different stories about how LyondellBasell's earnings power could evolve. If you want to see the reasoning, risks and numbers in full for each version of the story, the previews above link you straight into them so you can decide which assumptions feel closer to your own view.

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