Perimeter Solutions (PRM) is making moves to offset industry challenges by cutting operating costs and expanding its fire prevention business. The company’s strong buy rating and earnings outlook are starting to draw fresh investor interest.

Momentum has clearly picked up for Perimeter Solutions. After trailing flatly for much of early 2024, investors have driven the share price up 99.6% year-to-date and delivered a total shareholder return of 105% over the past year. Strategic moves like expanding its fire prevention business and maintaining a strong liquidity position are fueling optimism and keeping PRM’s upward trend in focus.

If Perimeter’s turnaround has your attention, now’s the perfect chance to broaden your search and discover fast growing stocks with high insider ownership

With shares nearly doubling this year and a robust outlook fueling investor optimism, the key question remains: is Perimeter Solutions trading at a bargain, or are markets already factoring in the company’s next phase of growth?

Price-to-Earnings of 48x: Is it justified?

Perimeter Solutions trades at a lofty price-to-earnings ratio of 48x, notably higher than both peer and industry averages. At a last close of $25.33, this premium valuation signals big expectations from the market.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay for each dollar of earnings a company generates. For PRM, this high multiple often reflects investor confidence in sustained growth or an expectation that recent profitability will rapidly improve.

Despite becoming newly profitable and boasting high-quality earnings, PRM's P/E sits well above the industry average of 22.9x and peers' 28.3x. The market is assigning a premium that only continued earnings growth could justify. If PRM’s profitability accelerates further, the multiple could look more reasonable. However, without significant profit expansion, this valuation stands out as expensive relative to its sector benchmarks.

Result: Price-to-Earnings of 48x (OVERVALUED)

However, weaker future earnings growth or unexpected industry headwinds could quickly challenge optimism regarding Perimeter Solutions’ recent momentum and premium valuation.

Another View: Discounted Cash Flow Perspective

Looking at valuation from a different angle, our SWS DCF model suggests Perimeter Solutions may actually be undervalued, with the stock trading about 14% below its estimated fair value. This perspective gives investors a more optimistic outlook compared to the lofty earnings multiple. Could this signal hidden upside, or does it merely highlight the uncertainty in forward assumptions?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Perimeter Solutions for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 897 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Perimeter Solutions Narrative

If you have a different perspective or want to dive into the numbers yourself, it only takes a few minutes to craft your own view. Do it your way.

A great starting point for your Perimeter Solutions research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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.