• If you are wondering whether International Flavors & Fragrances is offering fair value at current levels, this article walks through what the numbers are actually saying about the stock.
• The share price last closed at US$69.81, with returns of 3.6% over the past 30 days, a 2.6% gain year to date, a 1 year decline of 18.0%, and a 3 year fall of 33.1%.
• Over the past few years, investors have been reacting to changing expectations around International Flavors & Fragrances' growth profile and balance sheet. This helps explain the 5 year share price decline of 37.2%, and these shifts in sentiment provide important context for thinking about what the current price says about the business today.
• On our valuation checks, International Flavors & Fragrances scores 4 out of 6, as shown by our valuation score. Next we will look at how different valuation methods line up with that result, before finishing with a simple way to keep on top of the valuation story over time.

Approach 1: International Flavors & Fragrances Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth today by projecting its future cash flows and then discounting those back to a present value.

For International Flavors & Fragrances, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month Free Cash Flow is about $421.4 million. Analysts provide estimates for the next few years, and Simply Wall St then extends these to build a longer term view, with projected Free Cash Flow of $1.53 billion in 2035.

When all those projected cash flows are discounted back and added up, the DCF model suggests an intrinsic value of about $89.72 per share. Compared with the recent share price of $69.81, this implies a discount of roughly 22.2%, which indicates that the stock screens as undervalued on this metric today.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests International Flavors & Fragrances is undervalued by 22.2%. Track this in your watchlist or portfolio, or discover 868 more undervalued stocks based on cash flows.

Approach 2: International Flavors & Fragrances Price vs Sales

For International Flavors & Fragrances, the preferred yardstick is the Price to Sales, or P/S, ratio, which can be a useful way to think about value when you want to compare what investors are paying for each dollar of revenue across similar companies.

In practice, the level of a "normal" trading multiple reflects what the market is assuming about a company’s future growth and the risk it sees in those cash flows. Higher expected growth and lower perceived risk usually support a higher ratio, while the opposite tends to push it lower.

International Flavors & Fragrances is currently on a P/S of 1.61x, compared with the Chemicals industry average of 1.14x and a peer group average of 2.23x. Simply Wall St also calculates a proprietary Fair Ratio for the stock, which in this case is 1.92x, based on factors such as earnings growth, industry, profit margin, market cap and specific risks.

This Fair Ratio can be more insightful than a simple comparison with peers or the industry because it brings those company specific drivers into a single number, instead of relying on broad group averages that may not reflect International Flavors & Fragrances’ own profile very well.

Putting that together, the current P/S of 1.61x is below the Fair Ratio of 1.92x, which indicates that the shares screen as undervalued using this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your International Flavors & Fragrances Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to your assumptions for fair value, future revenue, earnings and margins.

With a Narrative, you connect what you believe about International Flavors & Fragrances as a business to a clear financial forecast, and then to a fair value that you can compare with today’s share price to decide whether it looks attractive or expensive to you.

On Simply Wall St, millions of investors do this on the Community page by building or following Narratives. These Narratives are easy to set up, update automatically when new news or earnings arrive, and always show how a user’s fair value stacks up against the live market price.

For example, one International Flavors & Fragrances Narrative on the Community page might assume a relatively high fair value based on stronger long term revenue and margin expectations. Another might assume a lower fair value with more cautious estimates, giving you a quick sense of how different investors are interpreting the same set of facts.

Do you think there's more to the story for International Flavors & Fragrances? 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.