Assessing NewMarket (NEU) Valuation As Shares Trade At Reported 48% Intrinsic Discount

NewMarket (NEU) stock has drawn attention after recent trading left it with a reported intrinsic discount of about 48%, prompting investors to reassess the petroleum additives producer’s valuation and underlying fundamentals.

See our latest analysis for NewMarket.

At a share price of $641.60, NewMarket’s recent 1 month share price return of 4.10% contrasts with a weaker year to date share price return of 6.71%, while the 5 year total shareholder return of 104.05% points to stronger longer term compounding.

If the petroleum additives story has your attention, it could be a good moment to widen your watchlist with a screener built around 8 top copper producer stocks

With NewMarket reporting an intrinsic discount of about 48% against a mixed recent return profile, you have to ask: is this an undervalued specialty chemicals player, or is the market already pricing in all the future growth?

Price to earnings of 14.5x: Is it justified?

NewMarket trades on a P/E of 14.5x at a last close of $641.60. The SWS model suggests the shares are trading at a 48.2% discount to its estimate of future cash flow value of $1,239.48, which points to a gap between price and the value implied by both earnings and cash flow.

The P/E ratio compares the share price to earnings per share. For a company like NewMarket that produces petroleum additives and reports high quality earnings, it gives a quick read on how much investors are paying for each dollar of profit.

According to SWS, NewMarket is described as good value on this 14.5x P/E when set against both its peer group average of 25.2x and the wider US Chemicals industry average of 29.7x. This suggests the market is valuing the company at a lower earnings multiple than many competitors despite its 17% per year earnings growth over the past 5 years and a Return on Equity of 23.5%.

On a relative basis, that is a sizeable discount. If the company can maintain high quality earnings and keep using its experienced board and management team to support returns, the valuation gap to peers could matter over time.

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

Result: Preferred multiple of price to earnings of 14.5x (UNDERVALUED)

However, you also have to weigh risks such as a slowdown in global industrial activity that could affect petroleum additive demand, or margin pressure if input costs or competition intensify.

Find out about the key risks to this NewMarket narrative.

Another view: what if the cash flows are right?

The DCF result is striking. Our DCF model values NewMarket at an estimated future cash flow value of $1,239.48 per share, versus a recent price of $641.60, which implies the shares are trading at about a 48% discount.

If that gap reflects a conservative cash flow view as well as a 14.5x P/E that already sits below peers, it raises a tougher question for you as an investor: is this discount a signal of opportunity, or is the market pricing in risks that are not yet obvious in the numbers?

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 61 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

If this mix of potential risks and rewards leaves you on the fence, take a close look at the numbers now and decide where you stand. Start with the 2 key rewards and 1 important warning sign

Looking for more investment ideas?

If NewMarket has sharpened your focus on value and quality, this is the moment to widen your search and see what else might fit your criteria.

• Target dependable cash generators by scanning companies with strong income potential using the 13 dividend fortresses.
• Spot potential bargains early by checking stocks that pair attractive pricing with quality fundamentals through the 61 high quality undervalued stocks.
• Prioritise resilience by focusing on companies screened for financial strength and stability via the 73 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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