Energizer Holdings (ENR) is back on watch for investors after recent trading left the stock down about 6% over the past month and roughly 8% over the past 3 months.

Despite the recent pullback, with a 30 day share price return of down 6.5% and a year to date share price return of down 7.7%, the longer term picture is weaker, as the 3 year total shareholder return is down 36.2%, suggesting momentum has been fading rather than building.

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With Energizer’s 3 year total shareholder return down 36.2% and the stock trading below some analyst targets, you need to ask: is this a mispriced consumer staple, or is the market already discounting future growth?

Price-to-Earnings of 6.5x: Is it justified?

Based on a P/E of 6.5x, Energizer looks cheap compared to peers and the broader Household Products industry, even after a share price that has declined over recent periods.

The P/E ratio tells you what investors are currently paying for each dollar of earnings, and for a consumer products company like Energizer it is a quick way to compare how the market is valuing its profit stream against similar businesses.

Here, the market is pricing Energizer at a P/E of 6.5x while the estimated fair P/E is 13x. This suggests the current price is well below a level the market could move toward if sentiment and assumptions around earnings align with that fair ratio.

Relative to the Global Household Products industry average P/E of 16.9x and a peer average of 21x, Energizer’s 6.5x stands out as materially lower. This means investors are currently paying a much smaller multiple of earnings than is typical for this group.

Result: Price-to-Earnings of 6.5x (UNDERVALUED)

However, the weak 3 year total return and the market’s discount to analyst targets suggest sentiment could stay cautious if earnings or cash generation disappoint from here.

Another View: What The DCF Model Suggests

The P/E of 6.5x points to good value, but the SWS DCF model paints an even stronger picture. With the stock at $18.40 and an estimated future cash flow value of $84.60, the model suggests Energizer is deeply undervalued. That is a wide gap, so which signal would you trust more?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Energizer Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment in this article pointing to both pressure and potential, this is a moment to look at the data yourself and decide quickly where you stand. To help weigh both the upside and the downside, take a closer look at the 5 key rewards and 2 important warning signs

Looking for more investment ideas?

If Energizer has caught your eye, do not let your research stop here. Broaden your watchlist now and give yourself more options before the next move.

• Spot potential bargains early by scanning screener containing 22 high quality undiscovered gems that combine solid fundamentals with relatively low investor attention.
• Strengthen your portfolio core with solid balance sheet and fundamentals stocks screener (45 results) that focus on companies carrying less financial strain.
• Dial down volatility by reviewing 62 resilient stocks with low risk scores and see which stocks currently screen for more resilient characteristics.

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.