Chart Industries (GTLS) is back on investors’ radar after its latest figures highlighted a mix of strong revenue growth and modest net income, prompting fresh questions about how the current share price reflects those fundamentals.

At a share price of US$207.03, Chart Industries has seen relatively muted short term share price moves, while its 1 year total shareholder return of 33.4% points to stronger underlying momentum that has built over a longer period.

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With revenue growth running at 8.1% a year, but net income of just US$15.1 million on US$4.26b of sales, is Chart Industries quietly undervalued at a reported 28.6% intrinsic discount, or is the market already pricing in future growth?

Preferred Price-to-Sales of 2.3x: Is it justified?

On a P/S of 2.3x, Chart Industries screens as slightly cheap against some peers, yet a touch expensive versus the broader US Machinery industry.

The P/S ratio compares the company’s market value to its annual revenue. This can be useful when net income is small or affected by one off items, as is the case here. For a business with US$4.26b of revenue and thin margins, investors often look at P/S to gauge how much they are paying for each dollar of sales regardless of short term earnings noise.

Against the estimated fair P/S of 2.5x, the current 2.3x suggests the market is assigning a lower valuation level than the SWS fair ratio model points to. This could indicate some caution around earnings quality, the recent 0.4% net margin, or the large one off loss of US$293.1m in the last 12 months. Yet compared with the peer average of 3.5x, the discount is far more pronounced, implying investors are currently paying materially less per dollar of sales than for similar companies where the ratio could move closer to the level implied by the fair ratio.

Versus the US Machinery industry average P/S of 2x, the 2.3x level is higher. This shows the stock is not uniformly cheap across all comparisons and that part of the pricing likely reflects its product mix in cryogenic equipment, LNG and hydrogen solutions, and recurring service and leasing revenue.

Result: Price-to-Sales of 2.3x (UNDERVALUED)

However, this hinges on risks such as its very slim 0.4% net margin and the recent US$293.1m one off loss, which may signal further earnings pressure.

Another view from our DCF model

While the 2.3x P/S ratio hints at some value on a sales basis, the SWS DCF model points to a different angle. With an estimated future cash flow value of $289.76 versus the current $207.03 share price, the model suggests undervaluation and raises the question of whether cash flows are the clearer guide here.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Chart Industries 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 53 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

The mix of potential upside and real risks is clear, so it makes sense to review the numbers yourself and decide where you stand based on 2 key rewards and 3 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.