Ziff Davis (ZD) has drawn fresh investor attention after selling its Connectivity business for US$1.2b in cash. The move highlights the company’s sum of the parts value and its capital allocation choices.

That sale has landed against a backdrop of strong recent share price momentum for Ziff Davis, with a year to date share price return of 58.22% and a 1 year total shareholder return of 67.80%, even though the 3 year and 5 year total shareholder returns are still down sharply.

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The US$1.2b Connectivity sale and strong recent share price gains have pushed Ziff Davis into the spotlight. The key question is whether this reflects mainly changing sentiment or a clearer picture of what the remaining business is worth.

Most Popular Narrative: 10.5% Overvalued

Based on the most followed valuation narrative, Ziff Davis has a fair value estimate of $48.67 compared with a last close of $53.78, which puts recent share price strength in a different light.

The analysts have a consensus price target of $48.67 for Ziff Davis based on their expectations of its future earnings growth, profit margins and other risk factors.

However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $61.0, and the most bearish reporting a price target of just $30.0.

Want to see what kind of revenue path, margin reset, and earnings multiple have to come together to support that fair value at a 10.11% discount rate? The narrative lays out a tight set of assumptions on shrinking top line, improving profitability, and a premium earnings multiple that might surprise you.

Result: Fair Value of $48.67 (OVERVALUED)

However, Ziff Davis still faces meaningful risks, including reliance on acquisitions to offset revenue declines and ongoing pressure on digital advertising that could weigh on margins.

Another View on Ziff Davis Valuation

The analyst narrative sees Ziff Davis as about 10.5% overvalued based on a fair value of $48.67 and a share price of $53.78. Our DCF model points in a different direction, with a fair value of $64.16, which implies the stock trades at a 16.2% discount. Which story do you think fits the business better?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ziff Davis 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 41 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With Ziff Davis pulling in mixed signals on value, risks and upside, it may be useful to move quickly and stress test the data yourself using the 1 key reward and 4 important warning signs.

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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.