• Wondering whether Establishment Labs Holdings at around US$70.04 is offering fair value or asking too much for its growth story is a natural question if you are watching the stock.
• The share price shows a 1.4% return over the past 7 days, 4.6% over 30 days, 1.7% year to date and 95.2% over the past year, which naturally raises questions about how much of the story is already in the price.
• Recent coverage has focused on Establishment Labs Holdings in the context of the broader Medical Equipment space, with attention on its share price performance over different time frames and how that lines up with market expectations. Commentators have also highlighted how the stock’s past 3 year and 5 year returns of 5.0% and a decline of 8.8% compare with the much stronger 1 year figure. This has prompted closer scrutiny of valuation.
• Right now the company scores just 1 out of 6 on Simply Wall St’s valuation checks. The next step is to break down what different valuation approaches are saying about the stock and then finish with a broader way to think about valuation that goes beyond any single model.

Establishment Labs Holdings scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Establishment Labs Holdings Discounted Cash Flow (DCF) Analysis

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

For Establishment Labs Holdings, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is a loss of $68.68 million. Analysts provide explicit free cash flow estimates up to 2028, with projected free cash flow of $30.6 million in that year, all in $. Beyond that, Simply Wall St extrapolates cash flows through 2035, with each year discounted back to today to reflect risk and the time value of money.

On this basis, the DCF model arrives at an estimated intrinsic value of $50.73 per share, compared with the recent share price of about $70.04. That implies the stock is around 38.1% above this particular estimate of fair value, so on a pure DCF view the shares look expensive.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Establishment Labs Holdings may be overvalued by 38.1%. Discover 51 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Establishment Labs Holdings Price vs Sales

For companies where earnings are not yet positive, the P/S ratio is often a useful yardstick because it compares the value the market places on the stock with the revenue the company generates, without relying on profits that might still be volatile or negative.

What counts as a normal P/S ratio depends a lot on how quickly a company is expected to grow its sales and how risky that growth looks. Higher growth and lower perceived risk often justify a higher P/S, while slower growth or higher risk usually point to a lower multiple.

Establishment Labs Holdings currently trades on a P/S of 8.96x, compared with the Medical Equipment industry average of 2.73x and a peer average of 1.92x. Simply Wall St’s proprietary Fair Ratio for the stock is 4.64x, which reflects factors such as its growth profile, profit margins, industry, market cap and risk characteristics. Because this Fair Ratio is tailored to the company, it can be more informative than a simple comparison with peers or the industry as a whole. With the actual P/S of 8.96x sitting well above the Fair Ratio of 4.64x, the stock screens as expensive on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Establishment Labs Holdings Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach your own story about Establishment Labs Holdings to the numbers by linking your view of its future revenue, earnings and margins to a forecast and a Fair Value that you can compare with the current share price. This can help you decide whether to act now or wait, all within an easy tool on the Community page that updates automatically as fresh news or earnings arrive. You might, for example, align with a more cautious Narrative that sees Fair Value around US$76, or a more optimistic one closer to US$100, depending on which story you believe fits the company best.

Do you think there's more to the story for Establishment Labs Holdings? 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.