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Air Products (APD) Stock Could Be A Bargain On Cash Flow

Simply Wall St · 1d ago

Air Products and Chemicals has delivered a solid run, with the stock returning 23.9% over the past year, which naturally raises a question about whether the current share price lines up with the cash the business is expected to generate. For anyone looking at the recent strength, the real issue is how that performance stacks up against what its future cash flows may be worth today.

  • A 23.9% one year return puts real weight on the question of whether the current valuation still matches the cash the company may produce over time.
  • The business model is heavily tied to long term industrial gas contracts, which can support relatively visible cash generation and make a cash flow based intrinsic value estimate especially relevant.
  • Prefer to judge Air Products and Chemicals on sales? See why Air Products and Chemicals's 5.4x P/S tells a different valuation story.

The issue now is whether Air Products and Chemicals' recent share price strength is fully supported by its cash flows when assessed using a Discounted Cash Flow (DCF) view of intrinsic value.

If you want a broader watchlist while you assess whether Air Products and Chemicals' recent 23.9% one year return lines up with its cash flows, start with 29 high quality undervalued stocks.

Does Air Products and Chemicals Look Undervalued on Cash Flow?

The Discounted Cash Flow (DCF) approach used here looks at the cash Air Products and Chemicals may generate for shareholders over time and discounts it back into today’s dollars. Over the latest twelve months the group recorded a free cash flow loss of about $1.82b, so the model relies on projections that show the business shifting into positive territory rather than extrapolating the recent figure.

Analyst estimates in this DCF framework assume Air Products and Chemicals moves to materially positive free cash flow that then increases over the coming decade in the low to mid single digit range after an initial ramp up. On those assumptions, the DCF projections put Air Products and Chemicals' estimated intrinsic value substantially above the current share price of $307.11, which indicates a market valuation that does not fully reflect the cash flow profile implied by the model. Find out what Air Products and Chemicals could be worth using our Discounted Cash Flow (DCF) estimate.

The Air Products and Chemicals Narrative: What Would Justify Today's Price?

Narratives for Air Products and Chemicals pick up exactly where that DCF puzzle leaves off. They spell out which paths for growth, margins and earnings would need to play out for the stock to end up worth materially more or less than today’s price, and they sit on Simply Wall St’s Community page. Each one turns its view of fair value into a specific, trackable thesis about how Air Products and Chemicals' business could develop, so you can watch how that reasoning holds up over time.

One of the top community narratives on Air Products and Chemicals: 11% undervalued

"The main factor that has to go right is continued capital discipline, including disciplined capex in the US$2.0b to US$2.5b range…"

Discover why this Narrative puts Air Products and Chemicals at 11% undervalued.

One more check for Air Products and Chemicals beyond the valuation math

Price, cash flow and narratives only tell part of the Air Products and Chemicals story, because the people allocating capital and how their rewards are structured can heavily influence what happens next. See who runs Air Products and Chemicals and how they are paid.