• Wondering whether Toro stock around US$88.68 still offers fair value, or if the recent run has already priced in the story? This article breaks that question down in plain terms.
• The stock is up 10.6% year to date and 16.3% over the past year, even though it has fallen 7.1% over the last week and 4.4% over the last month.
• These mixed returns put extra focus on company specific news and expectations rather than broad market moves. Recent coverage has centered on how Toro is positioned within machinery and equipment, along with ongoing discussions about capital allocation and where growth investment might be directed next.
• Toro currently has a valuation score of 2 out of 6. The next sections will break down what that score means across different valuation methods, before finishing with a way to put all those methods into a single, clearer picture for you.

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

Approach 1: Toro Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes the cash Toro is expected to generate in the future and discounts those cash flows back into today’s dollars to estimate what the business might be worth right now.

For Toro, the model uses a 2 Stage Free Cash Flow to Equity approach based on projected free cash flow to equity. The latest twelve month free cash flow is around $629.4 million. Analysts provide estimates for the next few years, and Simply Wall St then extrapolates further to build a 10 year path. By 2035, the projection used in the model is $565.0 million, with each year between now and then discounted back to today.

When all of those discounted cash flows are added together and adjusted for the number of shares, the DCF model points to an estimated fair value of about $84.20 per share. Compared with a share price around $88.68, this implies Toro trades at roughly a 5.3% premium to this cash flow based estimate, so it screens as slightly expensive rather than clearly cheap.

Result: ABOUT RIGHT

Toro is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Toro Price vs Earnings

For profitable companies, the P/E ratio is a useful way to connect what you pay for each share with the earnings that back that share. It keeps the focus on how much profit the business is already generating, rather than just revenue or assets.

What counts as a “normal” P/E depends on what the market expects for growth and how risky those earnings appear. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually calls for a lower one.

Toro currently trades on a P/E of about 26.0x, compared with a Machinery industry average of about 26.3x and a peer average of roughly 20.1x. Simply Wall St’s Fair Ratio for Toro is 24.3x. This Fair Ratio is a proprietary estimate of what the P/E could be given factors such as earnings growth, profit margins, industry, market cap and specific risks.

Because the Fair Ratio pulls these company specific drivers together, it can be more informative than a simple comparison with peers or the industry. With Toro’s actual P/E modestly above the 24.3x Fair Ratio, the stock screens as slightly expensive on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Toro Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as simple stories that connect your view of Toro with concrete numbers for future revenue, earnings and margins, then link that forecast to a Fair Value that you can compare with the current share price. All of this is available inside Simply Wall St’s Community page, where Narratives are refreshed as new news or earnings arrive. One investor might, for example, lean toward a Toro Fair Value of about US$110.50, while another anchors on the more cautious US$86.00. This gives you a clear sense of how different assumptions translate into different decisions on whether the stock looks expensive or inexpensive to you.

For Toro however, we will make it really easy for you with previews of two leading Toro Narratives:

Both are looking at the same company and similar data, but they reach different conclusions about what a reasonable Fair Value could be. This gives you a clear set of assumptions to compare with your own expectations before you decide whether the current US$88.68 share price feels high, low or somewhere in the middle.

Fair Value in this bull case narrative: US$110.50

Gap to Fair Value: about 19.7% below this narrative Fair Value at the recent US$88.68 share price

Assumed revenue growth: 3.67% a year

• Expects automation, electrification and productivity programs to support long term revenue growth and higher margins across Toro's core segments.
• Builds in analyst assumptions that revenue grows 3.7% a year, profit margins rise from 7.3% to 10.4%, and earnings reach US$528.4m by about May 2029.
• Arrives at a Fair Value of US$110.50 using a 24.6x P/E on those 2029 earnings and an 8.63% discount rate, with the share count assumed to edge lower over time.

Fair Value in this bear case narrative: US$86.00

Gap to Fair Value: about 3.1% above this narrative Fair Value at the recent US$88.68 share price

Assumed revenue growth: 3.54% a year

• Focuses on execution risk around golf and grounds exposure, AMP cost savings, underground construction growth and customer adoption of new technology heavy products.
• Builds in more cautious assumptions that revenue grows 3.5% a year, margins move from 7.0% to 10.3%, and earnings reach US$513.5m by about March 2029.
• Arrives at a Fair Value of US$86.00 using a 19.8x P/E on those 2029 earnings and an 8.56% discount rate, with a slightly faster reduction in share count.

Taken together, these narratives frame a range where one community view sees Toro trading below its Fair Value and another has the share price sitting modestly above it. The key question for you is which set of assumptions feels closer to how you think Toro's revenues, margins and valuation multiple could play out over the next few years.

Once you know that, you can use the full Community Narratives to stress test your own view against different scenarios and decide whether Toro fits the role you want it to play in your portfolio.

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Toro 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 Toro? 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.