Light & Wonder (LNW) shares have faced a gradual decline over the past quarter, with the stock pulling back nearly 24% in the past 3 months. Investors are weighing its recent performance in comparison to longer-term returns and underlying fundamentals.

It’s been a tough stretch for Light & Wonder, as momentum has faded with a 14.1% one-month share price return. The latest close at $73.49 reflects this downtrend. Still, the 3-year total shareholder return remains positive despite recent headwinds.

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The question now is whether Light & Wonder’s recent pullback leaves the stock undervalued with more upside ahead, or if the market has already priced in all the growth investors can expect from this point forward.

Most Popular Narrative: 31% Undervalued

Light & Wonder’s most widely followed valuation narrative suggests its fair value is well above the recent close of $73.49. With a narrative fair value of $106.55, the market could be overlooking key future catalysts that have driven this pronounced discount.

Accelerating recurring revenue streams, combined with disciplined operating and capital allocation, including an expanded $1.5B buyback program, set up sustained improvements in earnings per share and long-term free cash flow generation. Macroeconomic and regulatory catalysts, such as recently passed U.S. bonus depreciation and R&D expense-friendly tax provisions, are expected to spur incremental operator demand for equipment and technology, while simultaneously lowering LNW's annual cash tax bill by up to $40-50M, improving both top-line growth and net margins.

Curious how this bold outlook stacks up? The narrative relies on ambitious improvement in profitability and some aggressive financial levers. But what assumptions really power that high valuation? Get the inside story on the underlying growth, buybacks, and margin moves that drive these bullish projections. You will want to see which forecasted numbers are moving the needle.

Result: Fair Value of $106.55 (UNDERVALUED)

However, persistent regulatory risks and competition from unregulated digital entrants could quickly disrupt Light & Wonder’s growth and threaten current margin assumptions.

Build Your Own Light & Wonder Narrative

If you want to take a hands-on approach and build your own perspective, it only takes a few minutes to generate and compare your own narrative. Do it your way

A great starting point for your Light & Wonder research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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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.