Is Zillow Group (ZG) Starting To Look Interesting Again After Recent Share Price Pressure?

• Wondering if Zillow Group at around US$40.41 is starting to look interesting again, or if the risks still outweigh the potential upside.
• The stock has seen pressure recently, with returns of 7.2% over 7 days, 9.8% over 30 days, 38.4% year to date, and 39.9% over the last year. This naturally raises questions about whether expectations or perceived risks have shifted too far.
• Recent coverage around the US housing market, mortgage affordability, and investor interest in real estate related technology has kept Zillow Group in focus for many readers. These themes help set the backdrop for the share price moves and are important context when you think about what a fair price might look like.
• On Simply Wall St's 6 point valuation check, Zillow Group scores 2 out of 6. Next up is a look at how different valuation methods frame that score and how an even richer way of thinking about valuation can add to your view.

Zillow Group scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Zillow Group Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects a company’s future cash flows and then discounts them back to today’s dollars, aiming to estimate what the entire business might reasonably be worth right now.

For Zillow Group, the latest twelve month Free Cash Flow sits at about $137.7m. Using a 2 Stage Free Cash Flow to Equity model that relies on analyst inputs for the next few years and then extends those trends, Simply Wall St projects Free Cash Flow reaching about $1,240.3m by 2030. These ten year projections blend analyst estimates through 2030 with extrapolated figures beyond the typical 5 year analyst window.

On this basis, the DCF model points to an estimated intrinsic value of about $98.87 per share. Compared with the recent share price around $40.41, the model implies the stock is roughly 59.1% undervalued, which is a wide gap for readers who put significant weight on long term cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Zillow Group is undervalued by 59.1%. Track this in your watchlist or portfolio, or discover 62 more high quality undervalued stocks.

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

Approach 2: Zillow Group Price vs Sales

For companies where earnings can be uneven or less informative, the P/S ratio is often a useful way to compare what the market is paying for each dollar of revenue. Higher growth expectations or lower perceived risk usually support a higher “normal” P/S multiple, while slower growth or higher risk tend to justify a lower one.

Zillow Group currently trades on a P/S of 3.75x. That sits above the Real Estate industry average of about 2.58x and also above the peer average of 1.93x, which may catch your eye if you are comparing it on simple relative terms.

Simply Wall St’s Fair Ratio for Zillow Group is 3.42x. This is a proprietary estimate of what the P/S multiple could look like after accounting for factors such as revenue growth, profit margins, risk profile, industry and market cap. Because it combines these elements into one figure, it can be more informative than looking only at peers or the broad industry.

With a current P/S of 3.75x versus a Fair Ratio of 3.42x, the stock screens as slightly overvalued on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Zillow Group Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St give you a simple story you can choose or create for Zillow Group, link that story to clear assumptions for future revenue, earnings and margins, and then connect it to a Fair Value that you can compare with the current share price to help decide whether the stock looks attractive or stretched.

Each Narrative lives on the Community page, is easy to read, and updates automatically when fresh information such as company news or earnings is added, so your story and Fair Value stay aligned with what is actually happening.

For Zillow Group, one investor might lean toward a bullish Narrative that lines up with a Fair Value around US$105.0 based on higher revenue growth and margins, while another might prefer a more cautious Narrative closer to US$66.0. Having these side by side helps you see how different views on the same business translate into very different Fair Values.

Do you think there's more to the story for Zillow Group? 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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