• If you are wondering whether Flowserve at around US$65.07 is offering good value today, the answer depends on how you look at its price tag versus its fundamentals.
• The stock has pulled back recently, with the share price down about 8.5% over the past week and 17.4% over the last month, although it still shows a 27.8% return over 1 year and 95.1% over 3 years.
• Recent headlines around the stock have focused on its role in capital goods and industrial equipment, as investors reassess how such businesses fit into their portfolios. That context helps explain why some investors may see the recent share price weakness as a reset after a strong multi year run, rather than a clear shift in the long term story.
• Simply Wall St’s valuation checks currently give Flowserve a 5 out of 6 score. Next you will see how traditional methods like DCF and multiples line up with that result, followed by a more complete way to think about valuation at the end of the article.

Approach 1: Flowserve Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes projected future cash flows and discounts them back to today to estimate what the entire business might be worth right now. It focuses on cash that could, in theory, be returned to shareholders over time.

For Flowserve, the latest twelve month Free Cash Flow is about $437.7 million. Analysts provide detailed forecasts for the next few years, and Simply Wall St extends those out using its own assumptions, resulting in a projected Free Cash Flow of around $755.9 million by 2035. All figures are in $ and use a 2 Stage Free Cash Flow to Equity model.

When these cash flows are discounted back and added up, the model arrives at an estimated intrinsic value of about $78.63 per share. Compared with a recent share price around $65.07, this implies the stock is trading at roughly a 17.2% discount to that DCF estimate, which suggests Flowserve may appear undervalued on this approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Flowserve is undervalued by 17.2%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.

Approach 2: Flowserve Price vs Earnings

The P/E ratio is a familiar way to assess profitable companies because it links what you pay directly to the earnings they generate. For a stock like Flowserve, it helps you see how much the market is willing to pay for each dollar of profit.

What counts as a “normal” or “fair” P/E depends on how quickly earnings are expected to grow and how risky those earnings appear to be. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually call for a lower multiple.

Flowserve currently trades on a P/E of about 23.5x. That sits below the Machinery industry average of roughly 25.9x and below the peer average of around 35.0x. Simply Wall St’s proprietary “Fair Ratio” for Flowserve is about 37.6x, which estimates the P/E you might expect given factors such as earnings growth, industry, profit margin, market cap and risk profile.

This Fair Ratio is more tailored than a simple comparison with peers or industry averages because it adjusts for company specific traits rather than assuming one size fits all. Since Flowserve’s current P/E of 23.5x is well below the 37.6x Fair Ratio, the stock screens as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Flowserve Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives let you attach a clear story about Flowserve to the numbers you care about, such as fair value, future revenue, earnings and margins. You can then link that story to a forecast and a fair value that you can compare with the current price.

On Simply Wall St’s Community page, Narratives are set up as an easy tool that many investors already use. You can quickly see how a more upbeat story, such as a fair value around US$102.0 with revenue growing close to 6.2% a year and margins near 12.3%, differs from a more cautious stance that leans toward fair value closer to US$60.0 with revenue growing about 3.5% and a lower future P/E of 16.5x. You can then decide how those viewpoints line up with your own expectations.

Because Narratives are refreshed when new information like news, guidance or earnings is added, you can see how the fair value and story around Flowserve move over time. You can then use the gap between each Narrative’s fair value range and the latest share price to help judge whether the stock currently looks closer to your version of too expensive, too cheap or roughly in line with what you think is reasonable.

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