• Wondering if Adams Diversified Equity Fund is priced attractively after its recent run, or if most of the value is already reflected in the share price?
• The stock last closed at US$22.43, with a 5.3% return over 7 days, compared with a 2.6% decline over 30 days and a 3.5% decline year to date. The 1 year and 3 year returns sit at 40.2% and 93.9% respectively, and 5 year returns at 97.3%.
• Recent news coverage around Adams Diversified Equity Fund has focused on its role as a long running, diversified closed end fund and how that structure affects the discount or premium to net asset value. Commentary has also highlighted how broader equity market sentiment can influence the fund's trading range.
• The current valuation score sits at 4 out of 6. The next sections will compare different valuation approaches for this fund and then finish with a way to bring those methods together into a clearer overall view of value.

Approach 1: Adams Diversified Equity Fund Excess Returns Analysis

The Excess Returns model looks at how much value a company creates over and above the return that equity investors require, then capitalizes those extra earnings into an intrinsic value per share.

For Adams Diversified Equity Fund, the starting point is its book value of $24.72 per share and a stable earnings figure of $3.96 per share, based on the median return on equity over the past 5 years. The model applies a cost of equity of $2.08 per share, which leaves an excess return of $1.88 per share. That excess is effectively the value created beyond the assumed required return.

The stable book value used in the model is $22.65 per share, again taken from a 5 year median, and the average return on equity sits at 17.50%. Combining these inputs, the Excess Returns framework arrives at an estimated intrinsic value of about $55.08 per share. Compared with the recent share price of $22.43, this implies the stock is 59.3% undervalued according to this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests Adams Diversified Equity Fund is undervalued by 59.3%. Track this in your watchlist or portfolio, or discover 59 more high quality undervalued stocks.

Approach 2: Adams Diversified Equity Fund Price vs Earnings

For profitable companies, the P/E ratio is a practical way to think about value, because it links what you pay for each share to the earnings that support that price. In general, higher growth expectations and lower perceived risk can justify a higher "normal" or "fair" P/E, while slower growth and higher risk usually go with a lower multiple.

Adams Diversified Equity Fund currently trades on a P/E of 5.72x. That sits well below the Capital Markets industry average P/E of 35.60x and the peer group average of 12.94x. On simple comparisons, the market is placing a lower value on each dollar of the fund’s earnings than on many industry peers.

Simply Wall St’s Fair Ratio concept adds another layer. Instead of just comparing to broad industry or peer averages, it estimates the P/E that might be expected given factors such as earnings growth, profit margins, risk profile, industry, and market cap. This can give a more tailored benchmark for Adams Diversified Equity Fund than a one size fits all sector average. In this case, the actual P/E of 5.72x sits below the Fair Ratio estimate, which points to the shares screening as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Adams Diversified Equity Fund Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are a simple way for you to attach a clear story to the numbers, by setting your own fair value, revenue, earnings and margin assumptions for Adams Diversified Equity Fund. A Narrative links what you believe about the fund and its future to a financial forecast and then to a fair value estimate that you can compare with the current share price to help decide whether it looks attractive, fully priced, or stretched. On Simply Wall St, Narratives sit in the Community page, so you can easily see and build different views that other investors are using on the same data used by millions of members. These Narratives update automatically when fresh information such as news or earnings is added, so your story stays aligned with the latest numbers. For example, one Adams Diversified Equity Fund Narrative might assume a higher long term return profile and fair value than another that is more cautious about future returns and margins, yet both are grounded in the same framework.

Do you think there's more to the story for Adams Diversified Equity Fund? 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.