NewMarket (NEU) Gains Momentum As Its Valuation Story Comes Back Into Focus

NewMarket (NEU) is back on investor radars after recent share price moves and a fresh look at its valuation profile. The stock closed at US$914.69, with an estimated intrinsic discount of 32.5%.

Over the past few months NewMarket’s share price has gained momentum, with a 30 day share price return of 7.6% and a 90 day share price return of 14.7%. The 5 year total shareholder return of 193.4% highlights how strongly long term holders have been rewarded.

Spot similar momentum stories by scanning the hand picked 45 high quality undervalued stocks that share characteristics with NewMarket's recent valuation gap and price strength.

For NewMarket, the recent share price strength could signal confidence in the petroleum additives business, or it could simply mirror changing sentiment at a premium price. How far does the current valuation lean toward each explanation?

Price-to-Earnings of 19.5x: Is it justified?

NewMarket is trading on a P/E of 19.5x, which is framed as good value compared with both peers at 34.3x and the wider US Chemicals industry at 23.7x. At a last close of $914.69 and with an internal estimate that the stock trades at a 32.5% discount to fair value, the current earnings based multiple points to a valuation that the market prices below these comparisons.

The P/E ratio compares NewMarket's current share price to its earnings per share and is a common way for investors to gauge how much they are paying for each dollar of profit. For a mature, profitable business like NewMarket, which operates in petroleum additives and related products, this multiple can help investors judge whether the market is attaching a richer or more modest price tag to its earnings stream.

NewMarket has high quality earnings and its return on equity is described as high at 23.6%. Earnings have also grown by 16.2% per year over the past 5 years, even though the company reported an earnings decline of 9.8% over the last year and a lower net profit margin of 15.7% compared with 17.2% previously. Taken together, this mix of solid long term profit growth, high return on equity and a pull back in recent margins helps explain why the current P/E sits below peer and industry levels. The market appears to be pricing NewMarket at a discount to other chemicals stocks, while still recognising its profitability record.

Compared with the US Chemicals industry average P/E of 23.7x, NewMarket's 19.5x multiple is meaningfully lower. Against a peer group average of 34.3x it looks even more conservative, which suggests investors are paying less for each dollar of NewMarket's earnings than for many similar companies in the sector.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 19.5x (UNDERVALUED)

However, NewMarket still faces risks around recent earnings weakness and margin compression, which could pressure sentiment if profitability or petroleum additives demand softens further.

Find out about the key risks to this NewMarket narrative.

Another view on NewMarket’s value

The SWS DCF model values NewMarket at $1,355.94 per share compared with the recent price of $914.69. That points to the stock trading at a large discount based on future cash flow assumptions, even though the current P/E already looks modest against peers. Which lens do you put more weight on?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NewMarket 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 45 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 both enthusiasm and caution in the mix for NewMarket, it makes sense to promptly review the full picture and weigh the 1 key reward and 1 important warning sign

Looking for more investment ideas beyond NewMarket?

If NewMarket has sharpened your interest in valuation and quality, do not stop here. The next strong idea could already fit your portfolio, so keep searching smartly.

• Target potential mispricings by scanning companies that appear attractively valued on both quality and price using the 45 high quality undervalued stocks.
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• Prioritise capital protection by filtering for businesses with steadier profiles and lower overall risk scores via the 75 resilient stocks with low risk scores.

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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