• If you are wondering whether Graco's current share price lines up with its underlying value, this breakdown will help you connect the dots before you commit new capital.
• Graco's stock recently closed at US$75.32, with the share price down 2.3% over the past week, 13.2% over the last month and 12.0% over the past year, while edging up 1.6% over three years and 6.8% over five years.
• Recent coverage around Graco has focused on its position in the capital goods space and investor interest in how it is priced relative to its fundamentals. This context helps explain why the recent share price moves are drawing renewed attention to what investors are actually paying for each dollar of the business.
• On Simply Wall St's valuation checks, Graco scores 4 out of 6. This sets up a closer look at how different valuation methods judge the stock today and hints at an even richer way to think about value that will be covered at the end of this article.

Approach 1: Graco Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model takes estimates of the cash a company may generate in the future and discounts those cash flows back to today using a required rate of return, giving an estimate of what the entire business could be worth in $ right now.

For Graco, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow stands at about $571.6 million. Analysts supply free cash flow estimates for the coming years, and Simply Wall St extends these out further. The projection for 2028 is $692.0 million, with continuing projections through 2035 in the hundreds of millions of dollars each year.

Bringing all of these projected cash flows back to today results in an estimated intrinsic value of about $84.30 per share, compared with the recent share price of $75.32. That implies the stock trades at roughly a 10.7% discount to this DCF estimate, which indicates Graco is modestly undervalued on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Graco is undervalued by 10.7%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.

Approach 2: Graco Price vs Earnings

For a profitable company like Graco, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. Higher growth expectations and lower perceived risk usually support a higher “normal” P/E, while slower growth or higher risk tend to justify a lower multiple.

Graco currently trades on a P/E of about 24.2x. This sits below the Machinery industry average of roughly 25.8x and also below the peer group average of about 26.1x. On simple comparisons, the stock is priced a little lower than many peers for its earnings.

Simply Wall St’s Fair Ratio for Graco is 22.5x. This is a proprietary P/E level that reflects factors such as earnings growth, industry, profit margins, market cap and company specific risks. It gives a more tailored view than broad industry or peer averages. Since Graco’s actual P/E of 24.2x is higher than the Fair Ratio of 22.5x by more than a small margin, the stock appears somewhat expensive on this preferred multiple.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Graco Narrative

Earlier the article mentioned that there is an even better way to understand valuation. Narratives let you attach a clear story about Graco to the numbers, link that story to a forecast for revenue, earnings and margins, and then translate it into a fair value that you can easily compare with the current share price on Simply Wall St's Community page. These Narratives are used by millions of investors, update automatically when fresh news or earnings arrive, and can differ meaningfully. For example, one Narrative might lean closer to the bullish US$103.0 fair value while another might anchor near the more cautious US$82.0, giving you a simple side by side view of how different assumptions relate to different perspectives on whether the stock looks expensive or attractive against the live market price.

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