Is A. O. Smith (AOS) Still Attractive After Recent Valuation Checks?

• If you are wondering whether A. O. Smith shares still offer value at current levels, this article will walk through what the numbers are really saying about the stock.
• The share price recently closed at US$68.32, with returns of 0.4% over the last 7 days, 0.4% over the last 30 days, 0.0% year to date, 1.2% over 1 year, 17.3% over 3 years and 31.4% over 5 years. This performance sets a useful backdrop for thinking about risk and reward.
• Recent company news has kept A. O. Smith on investors' radar and has helped frame expectations around how the business might justify its current share price. This context matters because it often influences how the market reacts to any new information about the company.
• Right now, A. O. Smith scores a 5 out of 6 valuation check, which suggests the stock screens as undervalued on most of the metrics used in that framework. Next, we will look at how different valuation methods line up with that score, before finishing with an even more useful way to think about what the stock might be worth.

A. O. Smith delivered 1.2% returns over the last year. See how this stacks up to the rest of the Building industry.

Approach 1: A. O. Smith Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects the cash a company could generate in the future, then discounts those cash flows back to today to estimate what the business might be worth right now.

For A. O. Smith, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $571.5 million, and analysts and extrapolated estimates point to projected free cash flow of $663.7 million in 2029, with further annual projections out to 2035 supplied by Simply Wall St's model. All of these cash flows are in US$.

When those projected cash flows are discounted back, the DCF model arrives at an estimated intrinsic value of about $86.01 per share. Compared to the recent share price of $68.32, this implies a 20.6% discount, which indicates the shares currently screen as undervalued according to this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests A. O. Smith is undervalued by 20.6%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for A. O. Smith.

Approach 2: A. O. Smith Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. It links directly to what the business currently earns, so it is a practical cross check on more complex models like the DCF.

What counts as a “normal” P/E depends on how the market views a company’s growth potential and risk. Higher growth and lower perceived risk usually support a higher P/E, while slower growth or higher risk tend to justify a lower one.

A. O. Smith currently trades on a P/E of 17.93x. That sits below the Building industry average of about 19.48x and well below the peer average of 28.75x provided here. Simply Wall St also calculates a “Fair Ratio” of 20.04x, which is the P/E it would expect given factors like the company’s earnings growth profile, industry, profit margins, market cap and risk indicators.

This Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for those company specific drivers rather than assuming all firms deserve the same multiple. Comparing 17.93x to the Fair Ratio of 20.04x suggests the shares screen as undervalued on this measure.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1466 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your A. O. Smith Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These let you turn your view of A. O. Smith into a clear story behind the numbers by linking your assumptions about future revenue, earnings, margins and fair value to a live forecast that compares Fair Value to the current price, updates automatically when news or earnings arrive, and sits inside the Simply Wall St Community page where millions of investors share different views. For example, one Narrative sees A. O. Smith worth US$89.00 based on confidence in digital leadership and capital returns, while another caps Fair Value at US$65.00 because it focuses more on risks such as mature North American markets, China uncertainty and input cost pressure.

Do you think there's more to the story for A. O. Smith? 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.

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