Is CRA International (CRAI) Pricing Reflect Its Mixed Return History And DCF Valuation Gap

• If you are wondering whether CRA International is good value at its recent price of US$164.00, the starting point is understanding how that price lines up with the underlying business.
• The stock has moved around recently, with a 4.7% gain over the last 7 days, a 9.0% decline over 30 days, year to date returns of an 18.2% decline, and a 6.1% decline over the last year, set against longer term returns of 62.1% over 3 years and 138.3% over 5 years.
• Recent news coverage has focused on CRA International's position within the Professional Services space and how investors are reacting to its current valuation and fundamentals. This context helps explain why shorter term returns differ from the longer term track record and why some investors may be reassessing the risk and reward trade off.
• On Simply Wall St's six point valuation checklist, CRA International scores 3 out of 6. The rest of this article will compare different valuation methods and then finish by looking at a broader way to think about what the market price is really telling you.

CRA International delivered -6.1% returns over the last year. See how this stacks up to the rest of the Professional Services industry.

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

A Discounted Cash Flow model takes estimates of a company’s future cash flows and then discounts them back to today’s value to see what the business might be worth right now.

For CRA International, the DCF uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $14.09 million. Analysts provide forecasts out to 2027, with Simply Wall St extrapolating beyond that. By 2035, the model uses a projected free cash flow of about $124.08 million, with a detailed path of annual projections between 2026 and 2035.

When all of those projected cash flows are discounted back and added up, the model arrives at an estimated intrinsic value of about $332.40 per share. Compared with the recent share price of US$164.00, this implies the stock is 50.7% undervalued according to this DCF framework.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests CRA International is undervalued by 50.7%. Track this in your watchlist or portfolio, or discover 63 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 CRA International.

Approach 2: CRA International Price vs Earnings

For a profitable company like CRA International, the P/E ratio is a straightforward way to link what you pay per share to the earnings the business is currently generating. Investors usually accept a higher or lower P/E depending on what they expect for future earnings growth and how risky they think those earnings are.

CRA International currently trades on a P/E of 19.7x. That sits above the Professional Services industry average P/E of about 19.0x, and below the broader peer group average of 27.6x. Simply Wall St’s Fair Ratio for CRA International is 14.1x, which reflects what its P/E might be given its earnings growth profile, profit margins, size, industry and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with peers or the industry, because it adjusts for company specific factors rather than assuming all Professional Services firms should trade on the same multiple. Comparing the current P/E of 19.7x with the Fair Ratio of 14.1x suggests the shares are pricing in a higher valuation than this framework implies.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your CRA International Narrative

Earlier the article mentioned that there is an even better way to understand valuation. Narratives take the story you believe about CRA International, link it to your own revenue, earnings and margin assumptions, turn that into a fair value, and then let you compare that fair value with the current price inside Simply Wall St's Community page. Different investors can share very different views using the same data. For example, one Narrative leans on the US$252.50 fair value, 5.45% modeled revenue growth rate, 6.93% net profit margin and 25.72x future P/E. Another Narrative may be more cautious on growth or margins. Each Narrative automatically updates when fresh earnings, news or guidance are added.

Do you think there's more to the story for CRA 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.

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