Is Clearwater Analytics Holdings (CWAN) Fairly Priced After Recent 3-Year 48.6% Share Price Gain

• Wondering if Clearwater Analytics Holdings at around US$23.49 is offering good value right now, or if the price already reflects most of the upside you care about.
• The stock has been relatively steady in the near term, with a 0.9% return over the last 7 days and 0.4% over the last 30 days, while year to date it shows a 2.6% decline and the 1 year return sits at a 12.4% decline, compared with a 48.6% gain over 3 years.
• Recent coverage has focused on Clearwater Analytics Holdings as a listed software provider in the financial services space, with attention on how its platform fits into clients' back and middle office workflows. This context has kept investors watching how the business model and customer adoption story line up with the current share price.
• On Simply Wall St's 6 point valuation checklist, Clearwater Analytics Holdings scores 1 out of 6. The next sections will walk through what that means across different valuation methods and why a broader way of thinking about value, introduced at the end of this article, can be even more useful.

Clearwater Analytics Holdings scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Clearwater Analytics Holdings 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 the present.

For Clearwater Analytics Holdings, the model used is a 2 Stage Free Cash Flow to Equity approach, based on last twelve months free cash flow of about $165.3 million. Analysts provide explicit free cash flow estimates for the earlier years, and Simply Wall St then extrapolates further out, with projected free cash flow of $425.0 million in 2030 and a series of annual projections in between.

Bringing all those projected cash flows back to today using a required rate of return produces an estimated intrinsic value of about $24.52 per share. Compared with a recent share price of roughly $23.49, this implies the stock is about 4.2% undervalued on this DCF view, which is a relatively small gap.

Result: ABOUT RIGHT

Clearwater Analytics Holdings 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 Clearwater Analytics Holdings.

Approach 2: Clearwater Analytics Holdings Price vs Sales

For software businesses that are still building scale or reinvesting heavily, the P/S ratio is often a practical way to think about value, because it focuses on what you are paying for each dollar of revenue rather than current earnings.

In general, higher expected growth and lower perceived risk can support a higher “normal” P/S multiple. Lower growth expectations or higher risk tend to justify a lower one. So the context around Clearwater Analytics Holdings really matters when you look at its current valuation.

Clearwater Analytics Holdings is trading on a P/S of 9.45x, compared with the broader Software industry average of 3.34x and a peer group average of 6.33x. Simply Wall St’s Fair Ratio for the company is 4.89x, which is its proprietary view of what a justified P/S might be after considering factors such as growth profile, profit margins, industry, market cap and key risks.

This Fair Ratio can be more helpful than a simple peer or industry comparison, because it adjusts for company specific characteristics rather than assuming that all software names deserve similar multiples.

With the current 9.45x P/S sitting above the 4.89x Fair Ratio, the stock looks expensive on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Clearwater Analytics Holdings Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and on Simply Wall St that idea is captured in Narratives. These let you attach a clear story about Clearwater Analytics Holdings to specific assumptions for future revenue, earnings and margins, then link that story to a Fair Value you can compare with the current price.

A Narrative is essentially your view on what is driving the business, translated into a financial forecast that the platform turns into a Fair Value. This allows you to see whether your story points to Clearwater Analytics Holdings as priced above or below what you think it is worth.

These Narratives are available on Simply Wall St's Community page, where millions of investors share their own stories about companies using the same structure. The Fair Values update automatically as new earnings, news or deal terms are added.

For Clearwater Analytics Holdings, one investor might align with the cautious view that ties a Fair Value close to the lowest analyst target of US$23.00. Another might side with the more optimistic view that uses the highest target of US$36.00. Seeing those different Narratives side by side can help you decide how your own assumptions compare before you choose whether the current price makes sense for you.

Do you think there's more to the story for Clearwater Analytics Holdings? 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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