StandardAero (SARO) stock is in focus after the company secured a new 10-year U.S. Air Force T56 engine depot maintenance contract with a ceiling value of US$342.2 million.

Despite the new U.S. Air Force T56 contract, StandardAero’s share price has been under pressure in recent months. The 30 day share price return is down 13.03% and the year to date share price return is down 15.79%, while the 1 year total shareholder return is down 8.54%. This suggests momentum has been fading even as fresh contract wins highlight potential shifts in how investors weigh the company’s long term revenue visibility and risk profile.

Scan how other defense exposed industrials with solid fundamentals are trading right now by reviewing our curated list of solid balance sheet and fundamentals (51 results) alongside StandardAero’s latest contract win.

StandardAero now trades at US$24.96 after a weak run, even as it secures long dated defense work. Do those contract wins tip the risk reward toward buyers at this valuation, or is the recent share price slide sending a different signal?

Preferred P/E Multiple of 25.5x: Is It Justified?

StandardAero is currently trading at $24.96, and on a P/E of 25.5x it screens as good value relative to both its peers and the wider Aerospace & Defense industry. That sits alongside an internal fair value estimate that suggests the stock is trading 34.2% below a discounted cash flow based view of its future cash flows.

The P/E multiple reflects how much investors are paying for each dollar of StandardAero’s earnings. For a services focused aerospace business with $6,324.532m of revenue and $323.969m of net income, it is a quick way to compare what the market is charging for its earnings versus other companies in the same sector. A lower P/E than peers can point to the market taking a more cautious stance on the durability or growth profile of those earnings.

In StandardAero’s case, the P/E of 25.5x compares to an estimated Fair P/E of 28.3x. This suggests some room for the market multiple to move closer to that fair ratio level if current expectations hold. The company is also flagged as trading at good value compared to both peer averages and the broader US Aerospace & Defense industry, where the sector P/E sits at 38.6x and peer averages at 88.5x. That gap means investors are paying a much lower multiple of earnings for StandardAero than for many other stocks exposed to the same industry.

Explore the SWS fair ratio for StandardAero.

Result: Price-to-Earnings of 25.5x (UNDERVALUED)

However, investors still need to weigh contract concentration in defense and any shift in U.S. government spending, as well as execution risk across StandardAero’s two core segments.

Another View Using The SWS DCF Model

The earlier P/E work suggested StandardAero looks inexpensive against peers. The SWS DCF model points the same way. It places future cash flow value at $37.93 per share versus today’s $24.96, which implies the stock trades at a material discount. Could the market be underpricing that cash flow stream?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out StandardAero 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 49 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 StandardAero’s valuation signals pulling in one direction and recent share price pressure in another, it makes sense to review the underlying data yourself and move quickly to build an informed view. To help balance both the concerns and the potential upside already identified, take a closer look at the 5 key rewards and 2 important warning signs.

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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.