Is Lowe's (LOW) Fairly Priced After Recent Share Price Softness?

• Wondering if Lowe's Companies is fairly priced or if the current share price leaves a margin of safety for you as an investor? This article focuses squarely on what you are getting for the price you pay.
• The stock last closed at US$246.49, with returns of 1.4% over the past 7 days, a 0.8% decline over 30 days and 2.0% over the past year. These recent moves can influence how investors view both opportunity and risk.
• Recent attention on Lowe's has centered on its role as a major US home improvement retailer, with investors watching how home renovation activity and consumer spending trends relate to the business. Market commentary has also highlighted how large, established retailers like Lowe's can react to changes in housing and repair demand, which helps frame these recent price moves.
• Lowe's currently has a valuation score of 4 out of 6, which means it screens as undervalued on several key checks. Next we will look at what different valuation approaches say about that score and point to an even more complete way to think about value at the end of the article.

Find out why Lowe's Companies's 2.0% return over the last year is lagging behind its peers.

Approach 1: Lowe's Companies Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model looks at the cash Lowe's Companies is expected to generate in the future and discounts those cash flows back to what they are worth in today's dollars.

Lowe's most recent twelve month free cash flow is about $7.2b. Analysts and internal estimates project free cash flow out over the next decade, with a forecast of $9.6b in 2030. Simply Wall St uses a 2 Stage Free Cash Flow to Equity model, where the first years rely on analyst inputs and the later years are extrapolated from those estimates.

Putting all those projected cash flows together and discounting them back results in an estimated intrinsic value of about $263.59 per share. Compared with the recent share price of $246.49, the model points to Lowe's trading at roughly a 6.5% discount to this intrinsic value, which is a small gap rather than a deep value signal.

Result: ABOUT RIGHT

Lowe's Companies is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Lowe's Companies.

Approach 2: Lowe's Companies Price vs Earnings

For a consistently profitable company like Lowe's Companies, the P/E ratio is a straightforward way to relate what you pay per share to the earnings the business currently generates. It helps you see how many dollars of price you are paying for each dollar of earnings today.

What counts as a “normal” or “fair” P/E depends on how investors view growth prospects and risk. Higher growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually lines up with a lower P/E.

Lowe's current P/E is 20.45x. That is close to the Specialty Retail industry average of 20.67x and well below the broader peer group average of 47.24x. Simply Wall St also calculates a “Fair Ratio” of 20.91x for Lowe's, which is the P/E the company might attract given factors like its earnings profile, margins, industry, market value and risk characteristics.

This Fair Ratio is more tailored than a simple comparison to peers or the industry, because it looks at company specific drivers rather than assuming one size fits all. With the actual P/E at 20.45x versus a Fair Ratio of 20.91x, the stock screens as about fairly valued on this metric.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lowe's Companies Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which let you turn your view of Lowe's into a simple story that links your assumptions about future revenue, earnings and margins to a forecast and then to a fair value that you can compare with the current share price. This all happens within an easy tool on Simply Wall St's Community page that updates automatically as new news or earnings arrive. For example, one investor might build a Lowe's Narrative that aligns with a higher fair value closer to US$325 if they lean toward stronger growth and margins. Another might lean toward a lower fair value near US$221 if they are more cautious. Seeing where your own Narrative sits in that range can help you decide whether the current price feels like an opportunity or a signal to be patient.

Do you think there's more to the story for Lowe's Companies? 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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