• If you are wondering whether Astec Industries is still reasonably priced after its recent run, the stock's current valuation story is worth a closer look.
• The share price sits at US$54.87 after a 3.9% gain over the last 7 days, a 5.2% decline over 30 days, and returns of 22.9% year to date and 52.0% over 1 year, with a 3 year return of 41.6% and a 5 year return of a 22.9% decline.
• Recent coverage around Astec Industries has focused on its position within the capital goods space and how investors are assessing its long term prospects. This context helps explain why the market has been reassessing what a fair price for the shares might be.
• Astec Industries currently holds a 3 out of 6 valuation score, and the rest of this article will walk through how different valuation methods line up on the stock, before finishing with a way to tie those numbers back to the bigger picture for your portfolio.

Approach 1: Astec Industries Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and discounting them back to a single value in today’s dollars.

For Astec Industries, the model uses a 2 Stage Free Cash Flow to Equity approach. It starts from last twelve months free cash flow of about $28.24 million. Analysts provide explicit free cash flow estimates out to 2027, with Simply Wall St extrapolating further to build a 10 year cash flow path. By 2035, the projected free cash flow used in the model is $147.60 million, all in US$.

When those cash flows are discounted back to today, the estimated intrinsic value comes out at about $80.65 per share. Against the current share price of $54.87, this indicates the stock is around 32.0% undervalued based on this DCF framework.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Astec Industries is undervalued by 32.0%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

Approach 2: Astec Industries Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings, which is why it is the preferred multiple here. A higher or lower P/E often reflects what the market thinks about a company’s growth prospects and risk, with faster growth or lower perceived risk typically aligning with a higher “normal” P/E, and slower growth or higher risk aligning with a lower one.

Astec Industries currently trades on a P/E of 32.38x. That sits above the Machinery industry average P/E of 27.02x and slightly above the peer group average of 31.49x. To refine this comparison, Simply Wall St uses a proprietary “Fair Ratio”, which estimates the P/E that might be reasonable for Astec Industries after considering factors such as its earnings growth profile, industry, profit margins, market cap and key risks.

This Fair Ratio for Astec Industries is 29.72x, which can be more informative than a simple industry or peer comparison because it is tailored to the company’s specific characteristics rather than broad group averages. Compared with the current P/E of 32.38x, the shares look somewhat expensive relative to this Fair Ratio.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Astec Industries Narrative

Earlier it was mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, where you set a clear story for Astec Industries, link that story to specific forecasts for revenue, earnings and margins, translate those forecasts into a Fair Value, compare that to the current price to decide whether the stock looks more or less attractive, and then see that view update automatically as news or earnings arrive. This helps explain why one investor might build a more optimistic Narrative closer to the US$82.00 analyst target while another might anchor on a more cautious view nearer to US$69.00, even though both are looking at the same company.

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