• If you are wondering whether STERIS stock still offers value at its current price, this article breaks down what the numbers are really saying about it.
• The stock last closed at US$208.10, with returns that slipped 1% over the past week, rose 3.1% over the last month, and remain down 16.8% year to date and 12.6% over the past year. The 3 year and 5 year returns sit at 0.6% and 9.8% respectively.
• Recent news coverage around STERIS has focused on its position within healthcare equipment and how investors are reassessing risk and pricing in that context. This backdrop helps explain why the share price has been more volatile recently and why valuation has become such a key talking point.
• On Simply Wall St's 6 point valuation checklist, STERIS scores 2, which you can see in detail on its valuation scorecard. The rest of this article will unpack that result using several valuation approaches, and will also flag an even more insightful way to think about value at the end.

STERIS scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: STERIS Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a stock could be worth by projecting the company’s future cash flows and then discounting them back to today’s value using a required rate of return.

For STERIS, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow (FCF) is about $946.7 million. Simply Wall St combines analyst estimates, such as projected FCF of $977.9 million in 2028, with its own extrapolated forecasts out to 2035, where projected FCF is $1,280.7 million. All of these future cash flows are discounted back to today using the model’s assumptions.

On this basis, the estimated intrinsic value for STERIS comes out at about $232.81 per share. Compared with the recent share price of $208.10, the DCF output indicates the stock trades at a 10.6% discount on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests STERIS is undervalued by 10.6%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.

Approach 2: STERIS Price vs Earnings

For profitable companies like STERIS, the P/E ratio is a useful way to see what investors are currently paying for each dollar of earnings. It links directly to earnings power, which is often the main driver of how a stock is valued.

What counts as a "normal" or "fair" P/E depends on how the market views a company’s earnings growth potential and risk. Higher growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually support a lower P/E.

STERIS currently trades on a P/E of about 26x. That sits slightly above the Medical Equipment industry average of about 25.4x and above the peer group average of roughly 21.8x. Simply Wall St’s Fair Ratio for STERIS is 22.9x. This is its proprietary view of what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio can be more informative than a simple comparison with peers or the industry because it adjusts for those company level characteristics rather than treating all stocks as identical. Since STERIS’ current P/E of 26x is above the Fair Ratio of 22.9x, the stock screens as overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your STERIS Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Think of a Narrative as your own clear story for STERIS that connects what you believe about its future revenue, earnings and margins to a financial forecast, a fair value, and a simple decision point on the Simply Wall St Community page. There you can compare that fair value with the current price, see it refresh when new news or earnings arrive, and understand why one investor might build a Narrative that supports a fair value near the more bullish US$280 target while another builds a more cautious story closer to US$225 instead.

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