• Investors may be wondering whether Viavi Solutions at US$49.28 is still priced attractively after a big run, or if the easy money has already been made.
• The stock has pulled back about 7.7% over the last week. However, it is up 11.7% over the last month, 171.5% year to date and 432.2% over the past year.
• Recent coverage has focused on Viavi Solutions as a high momentum tech stock, with investors reacting to its strong share price move over the last 12 months. Commentary has also highlighted how the stock's multi year return of 409.1% over three years and 188.4% over five years compares with other technology stocks.
• Even after these moves, Viavi Solutions holds a valuation score of 3 out of 6. The next step is to compare what different valuation approaches say about the stock and then look at a smarter way to pull those signals together by the end of the article.

Approach 1: Viavi Solutions Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects a company’s future cash flows and then discounts those back to today’s value, aiming to estimate what the entire business could be worth now based on those projections.

For Viavi Solutions, the 2 Stage Free Cash Flow to Equity model starts from its last twelve months free cash flow of about $41.1 million and uses analyst forecasts plus extrapolated estimates for the coming decade. Analyst estimates run out in 2028, where free cash flow is projected at $325.8 million. Further years are extended using Simply Wall St assumptions, with all figures expressed in $ and kept below $1b over the period shown.

After discounting each of these projected cash flows and aggregating them, the model arrives at an estimated intrinsic value of $32.93 per share. With the current share price at $49.28, the DCF output suggests the stock trades at about a 49.6% premium to this intrinsic value, which points to it being overvalued on this specific cash flow model.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Viavi Solutions may be overvalued by 49.6%. Discover 54 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Viavi Solutions Price vs Sales

For companies where sales are a key driver and earnings are less useful, the P/S ratio can be a practical way to think about what you are paying for each dollar of revenue.

In general, higher growth expectations and lower perceived risk tend to support a higher “normal” P/S multiple, while slower growth or higher risk usually point to a lower one. For Viavi Solutions, the current P/S ratio is 8.44x. This sits above the Communications industry average of 2.41x, yet below the peer group average of 11.83x.

Simply Wall St’s Fair Ratio for Viavi Solutions is 10.71x. This proprietary figure aims to reflect what would be reasonable for the stock given factors such as its growth profile, industry, profit margins, market cap and risk characteristics, rather than just comparing it with a broad industry bucket.

Because the Fair Ratio of 10.71x is meaningfully higher than the current P/S of 8.44x, this framework suggests the stock may be undervalued on a sales basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Viavi Solutions Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives let you turn your view of Viavi Solutions into a clear story that connects assumptions about future revenue, earnings and margins to a fair value, then compares that fair value with the current share price to help you decide whether the stock looks attractive or expensive. All of this occurs inside Simply Wall St’s Community page, where Narratives are updated as new earnings or news arrive. Different investors can sit at opposite ends of the range. For example, one Narrative might lean closer to the more bullish fair value area around US$53.0, while another might reflect a cautious stance nearer US$25.0. This gives you a transparent way to see exactly which story you agree with and how it lines up against today’s market price.

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