• If you are wondering whether Urban Outfitters shares still offer value after a strong multi year run, this article walks through what the current price might be implying.
• The stock recently closed at US$73.16, with returns of a 9.4% decline over 7 days and a 10.6% decline over 30 days, set against a 30.9% return over 1 year and 168.1% over 5 years.
• Recent attention on Urban Outfitters has focused on how its current share price lines up with its fundamentals, as investors reassess what they are willing to pay for apparel and lifestyle retailers. In that context, it can be especially useful to compare the recent share price path with a few different ways of estimating what the business might be worth.
• On Simply Wall St's 6 point valuation checklist, Urban Outfitters scores a 4 out of 6. This suggests there is more to unpack in how the market is pricing the stock today. Next, we will look at several common valuation approaches and then finish with a framework that can help you tie them all together.

Approach 1: Urban Outfitters Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model looks at the cash Urban Outfitters is expected to generate in the future and then discounts those amounts back to what they could be worth in today's dollars. It is a way of asking what a stream of future cash flows might justify as a present share price.

Urban Outfitters last twelve month Free Cash Flow stands at about $403.0 million. Analysts provide explicit projections through 2029, with Simply Wall St extending the path further using a 2 Stage Free Cash Flow to Equity model. For example, projected Free Cash Flow for 2029 is $452.93 million, and longer term estimates run out to 2035, all expressed in US$.

Taking all of those projected cash flows together, the DCF model arrives at an estimated intrinsic value of about $79.36 per share. Compared with the recent share price of $73.16, this suggests the shares are roughly 7.8% undervalued, which is a modest gap rather than a major disconnect.

Result: ABOUT RIGHT

Urban Outfitters 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: Urban Outfitters Price vs Earnings (P/E)

For a profitable company like Urban Outfitters, the P/E ratio is a practical yardstick because it links what you are paying directly to the earnings the business is already generating. Investors typically accept a higher or lower P/E depending on what they expect for future growth and how risky they feel those earnings are.

Urban Outfitters currently trades on a P/E of 13.4x. That sits below both the Specialty Retail industry average P/E of 21.0x and a peer group average of 22.2x. On the surface, that gap might look like a simple discount, but those comparisons do not adjust for company specific factors.

Simply Wall St’s Fair Ratio attempts to account for some of those factors by estimating what a P/E might look like after considering earnings growth, profit margins, the company’s industry, market cap and risk profile. For Urban Outfitters, this Fair Ratio comes out at 15.4x, which is higher than the current 13.4x. That indicates the shares are priced at a lower multiple than the model suggests could be reasonable.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Urban Outfitters Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simply your own story about Urban Outfitters that ties together your assumptions for future revenue, earnings and margins with a financial forecast, a fair value estimate and a clear comparison to the current price. All of this is within an easy tool on Simply Wall St's Community page that updates when new news or earnings arrive. One investor might build a bullish Narrative around earnings of US$615.7 million and a higher fair value, while another might take the more cautious view closer to US$451 million. Both can quickly see how their chosen fair value stacks up against today’s share price and decide what that means for their own next step.

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