Resideo Technologies has nearly doubled investors' money over the past three years, and the current valuation checks suggest the stock still trades at a discount, with the Discounted Cash Flow (DCF) intrinsic value estimate indicating room above the recent US$35.83 share price.

• Resideo Technologies has returned 98.4% over the past three years, which puts extra focus on whether that gain is fully backed by fundamentals.
• The planned spin off of the ADI Global Distribution business may support a clearer, pure play building technologies profile for Resideo. However, execution risks around separating the two companies can affect how reliably cash flows track the intrinsic value estimate.
• Across the broader checks, Resideo screens as attractively priced, with the company looking undervalued on 6 of 6 valuation metrics.

The issue now is whether Resideo Technologies' current discount to the intrinsic value estimate offers a margin of safety after such a strong three year run.

Is Resideo Technologies a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here uses projected cash flows to estimate what Resideo Technologies might be worth today. For Resideo, the latest twelve month free cash flow shows an outflow of about $1.33b, so the model relies heavily on expectations for recovering and then growing cash generation in the years ahead.

On those assumptions, the DCF model arrives at an intrinsic value of about $46 per share, compared with the recent $35.83 share price. This implies the stock is roughly 22% undervalued. The planned spin off of ADI Global Distribution, with Resideo focusing on residential sensing and control, helps explain why the market may be cautious even as the cash flow model points higher.

Overall, the Discounted Cash Flow (DCF) work suggests Resideo Technologies stock currently looks undervalued relative to its projected cash flows and share price.

Our Discounted Cash Flow (DCF) analysis suggests Resideo Technologies is undervalued by 22.0%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Is Resideo Technologies a Bargain on Sales?

P/S is a useful cross check for Resideo Technologies because the ADI spin off and recent cash flow swings can make earnings and free cash flow harder to interpret, while revenue remains a cleaner anchor. Right now, Resideo trades at a P/S of 0.7x, compared with about 2.1x for the wider Building industry and 3.2x for its peer group.

The fair P/S ratio implied by the model, which factors in Resideo’s size, margins and risk profile, is about 1.9x. That is well above the current 0.7x level and suggests the stock screens as undervalued on sales even after allowing for company specific risks and the upcoming separation of ADI Global Distribution.

On this P/S yardstick, Resideo Technologies stock appears undervalued relative to both its sector and the model’s fair multiple.

The Resideo Technologies Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Resideo Technologies connect the valuation puzzle above with clear, scenario based views of what would need to happen to growth, margins and earnings for the stock to be worth materially more or less than today's price on the Community page. Each narrative ties its numbers to a specific view on how Resideo Technologies' growth, profitability and risks might evolve, giving you something concrete to revisit as new information comes through.

One of the top community narratives on Resideo Technologies: 30% undervalued

"The planned separation of the ADI segment and portfolio optimization are set to sharpen strategic focus and resource allocation, enabling both entities to better address evolving industry needs and unlocking potential value, with positive implications for operating leverage, margin profile, and long-term earnings power..."

Do you think there's more to the story for Resideo Technologies? Head over to our Community to see what others are saying!

The Bottom Line

For Resideo Technologies, both the Discounted Cash Flow (DCF) intrinsic value estimate and the market multiple work point to the stock looking undervalued, even after a solid three year return. The DCF view suggests more value in the cash flow profile than the current share price reflects, while the P/S comparison indicates a discount to both peers and the model’s fair ratio. What really decides the outcome from here is whether Resideo can execute cleanly on the ADI separation and keep cash flows and margins on a steadier footing so that the current discount does not prove to be a value trap.

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.