• If you are wondering whether Avantor's share price now reflects good value or lingering risk, you are not alone.
• The stock recently closed at US$9.05, with returns of an 18.9% decline over 7 days, a 25.6% decline over 30 days, a 21.0% decline year to date, a 47.8% decline over 1 year, a 62.6% decline over 3 years, and a 67.7% decline over 5 years.
• Recent coverage of Avantor has focused on its role in the broader pharmaceuticals and biotech supply chain and how sentiment around the sector may be affecting company specific expectations. News has also highlighted how investors are reassessing businesses in this space after a long period of changing risk appetite.
• Against that backdrop, Avantor currently records a valuation score of 5 out of 6. Next, we will look at what different valuation methods suggest about the stock, before finishing with a simpler way to interpret all of this analysis in one place.

Approach 1: Avantor Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and then discounting those back to a single present value figure.

For Avantor, the model uses last twelve month free cash flow of about US$487 million and applies a 2 Stage Free Cash Flow to Equity approach using analyst inputs for the earlier years, then extending those estimates further out. On this basis, free cash flow is projected to reach around US$887.9 million in 2035, with all those yearly figures converted into today’s dollars using a discount rate.

When those discounted cash flows are summed, Simply Wall St’s model arrives at an estimated intrinsic value of about US$16.42 per share. Compared with the recent share price of US$9.05, this implies the stock is trading at a 44.9% discount to that intrinsic value, which points to Avantor looking undervalued on this DCF view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Avantor is undervalued by 44.9%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Avantor Price vs Sales

For a business like Avantor, which is closely watched on its revenue base and margins, the P/S ratio is a useful way to see what investors are paying for each dollar of sales, especially when earnings can be less consistent or affected by accounting items.

Growth expectations and risk still matter here, because a higher or lower P/S ratio can reflect what the market thinks about future revenue potential and how confident it is that those sales will be profitable and durable.

Avantor currently trades on a P/S of 0.94x. That sits well below the Life Sciences industry average P/S of 2.77x and also below the peer group average of 4.08x. Simply Wall St’s Fair Ratio for Avantor on this measure is 2.62x. This Fair Ratio is a proprietary estimate of what a reasonable P/S might be, given factors such as the company’s earnings growth profile, industry, profit margins, market cap and specific risks.

Because the Fair Ratio folds these fundamentals into a single figure, it can be more tailored than a simple comparison with peers or the broad industry.

Set against the Fair Ratio of 2.62x, Avantor’s current P/S of 0.94x suggests the shares trade at a discount on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Avantor Narrative

Earlier we mentioned that there is an even better way to understand valuation, so Narratives on Simply Wall St let you attach a clear story about Avantor to the numbers by linking your view of its future revenue, earnings and margins to a forecast and a Fair Value, then comparing that Fair Value with the current price to help you decide whether you view it as an opportunity or a warning signal.

On the Community page, you can quickly pick from existing Narratives or outline your own. These are refreshed when new information such as earnings or news is added, so your view does not sit still while the market moves.

For Avantor, one investor might align with the higher Fair Value view around US$17.68 that assumes a stronger earnings profile. Another investor might be more comfortable with the lower Fair Value of US$12.00 that builds in more conservative expectations. Narratives make those different perspectives and their implications for your decision making easy to compare at a glance.

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