• If you are wondering whether Parker-Hannifin's current share price reflects its true value, the recent performance gives you plenty to think about.
• The stock recently closed at US$872.23, with a 7 day gain of 2.3%, a 30 day move that is roughly flat at a 0.1% decline, a year to date decline of 2.4%, and a 1 year return of 32.9% alongside very large 3 year and 5 year returns of 153.1% and 206.9% respectively.
• These returns sit against a backdrop of ongoing interest in Parker-Hannifin as a large industrial company involved in motion and control technologies. This type of business often attracts attention when investors reassess longer term infrastructure and manufacturing themes. Recent coverage has focused on how such companies are positioned in supply chains and whether their pricing power and order books can justify current valuations.
• Despite this, Parker-Hannifin currently scores 0 out of 6 on Simply Wall St's valuation checks. You can see the details in its valuation score. The rest of this article will unpack what different valuation approaches suggest about the stock and will point to an even more helpful way to think about value at the end.

Parker-Hannifin scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Parker-Hannifin Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, estimate projects a company’s future cash flows and then discounts them back to today’s dollars to get an implied value per share.

For Parker-Hannifin, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $3.67b. Simply Wall St then uses analyst estimates for several years and extends those with its own extrapolations, with projected free cash flow of $6.43b in 2035. All cash flows are assessed in $ and then discounted back to today using the model’s required return assumptions.

On this basis, the DCF model suggests an intrinsic value of about $717.93 per share, compared with the recent share price of $872.23. That gap implies the stock is about 21.5% above the model’s estimate of fair value. In other words, based on these cash flow projections, the DCF indicates the stock currently looks expensive.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Parker-Hannifin may be overvalued by 21.5%. Discover 47 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Parker-Hannifin Price vs Earnings

For a profitable company, the P/E ratio is a useful shortcut because it links what you pay for each share to the earnings that the business is currently generating. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk, and look for a lower P/E when growth expectations are more modest or risks are higher.

Parker-Hannifin currently trades on a P/E of 31.60x. That sits above the Machinery industry average P/E of 26.85x and also above the peer average of 28.84x, so on simple comparisons the stock carries a richer earnings multiple than many rivals.

Simply Wall St’s Fair Ratio for Parker-Hannifin is 31.16x. This is a proprietary estimate of what the P/E might be, given factors such as the company’s earnings growth profile, its industry, profit margins, market cap and key risks. Because it blends these elements, the Fair Ratio can be more tailored than a broad industry or peer comparison, which may not reflect the company’s specific strengths and risk profile.

Comparing the Fair Ratio of 31.16x with the actual P/E of 31.60x suggests the current pricing is slightly higher, but very close to the model’s view of fair value.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Parker-Hannifin Narrative

Earlier there was mention of an even better way to understand valuation, so Narratives are Simply Wall St’s way for you to attach a clear story about Parker-Hannifin to a set of numbers, linking your view on its future revenues, earnings and margins to a forecast and then to a Fair Value that you can compare against today’s price.

On the Community page, millions of investors use Narratives as an easy tool. Each story about the company, such as a constructive view with a Fair Value around US$1,033.75, or a more cautious stance closer to US$832.56, or an optimistic case near US$1,167.86, is tied directly to assumptions around growth, profitability, discount rates and P/E so you can see how different perspectives translate into different Fair Values.

Because Narratives update when new information like guidance, earnings or buyback activity is added, you can quickly see whether your chosen Parker-Hannifin Narrative still makes sense, and use the gap between its evolving Fair Value and the current share price to inform your own decision on whether the stock looks closer to an opportunity or something to be patient with.

For Parker-Hannifin however we will make it really easy for you with previews of two leading Parker-Hannifin Narratives:

Fair Value: US$1,167.86

Upside to Fair Value: about 25%

Implied Revenue Growth: 7.15% a year

• Focuses on margin expansion, with analysts in this camp expecting net margins to rise as cost initiatives, stronger backlogs and portfolio changes feed through to earnings power.
• Sees global infrastructure demand, local manufacturing and resilient supply chains as key supports for revenue growth and cash generation.
• Takes the view that higher free cash flow, ongoing buybacks and selective M&A could justify a higher future P/E multiple than today.

Fair Value: US$832.56

Downside to Fair Value: about 5%

Implied Revenue Growth: 5.34% a year

• Highlights the risk that reliance on legacy industrial and aerospace markets may limit future revenue growth if customer needs shift toward electrification and software heavy solutions.
• Flags rising input and labor costs, supply chain regionalization and acquisition integration as possible headwinds for margins and earnings per share.
• Assumes a lower future P/E multiple than the bullish view, reflecting concern that guidance and the long dividend record may already be well reflected in the current share price.

These two Narratives bracket a reasonable range of outcomes on growth, profitability and valuation, and the gap between them shows how much your own assumptions about Parker-Hannifin’s future can move your view of what the stock is worth.

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Parker-Hannifin on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do you think there's more to the story for Parker-Hannifin? 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.