If you are wondering whether Amdocs at around US$69.80 offers good value today, you will want to see how its current share price stacks up against a few different valuation checks.
The stock has seen pressure recently, with a 0.5% decline over the last 7 days, a 13.9% decline over the last 30 days and a 12.9% decline year to date, contributing to an 18.0% decline over the past year and an 18.2% decline over 3 years, while the 5 year return sits around flat at 0.2%.
These moves are occurring alongside ongoing investor interest in telecom and software providers like Amdocs, as the market continues to reassess companies that serve long term communications and media customers. For long term holders and new investors alike, this context makes it important to separate temporary sentiment from what the underlying valuation actually suggests.
On our 6 point valuation check, Amdocs scores a 5 out of 6, as shown in our valuation score. Next we will walk through the standard valuation approaches, then finish by looking at an even more rounded way to think about what the company might be worth.
A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and discounting them back to today’s value, so you can compare that figure with the current share price.
For Amdocs, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The last twelve months Free Cash Flow sits at about $758.0 million. Analyst inputs and extrapolated estimates point to projected Free Cash Flow of $956.5 million in 2030, with intermediate years such as 2026 to 2035 ranging between about $645.6 million and $1.2b in undiscounted terms, before being adjusted back to today using a discount rate.
Bringing all those cash flows back to today produces an estimated intrinsic value of about $132.97 per share. Compared with a current share price around $69.80, the model implies the stock is 47.5% undervalued under these assumptions.
For a profitable company like Amdocs, the P/E ratio is a useful shortcut because it links what you pay per share to the earnings the business is already generating. Investors typically accept a higher or lower P/E depending on what they expect for future growth and how risky those earnings appear to be, so there is no single “right” number that fits every company.
Amdocs currently trades on a P/E of 13.15x. That sits close to the peer average of 13.00x and below the broader IT industry average of 21.31x, which indicates that the market is valuing each dollar of Amdocs earnings in line with direct peers and lower than the wider sector.
Simply Wall St also estimates a Fair Ratio of 27.08x for Amdocs. This is a proprietary P/E estimate that factors in elements such as earnings growth, profit margins, size, industry and specific risks, so it can be more tailored than a simple comparison with peers or the overall industry. Compared with the current P/E of 13.15x, the Fair Ratio suggests the shares trade below the level implied by those fundamentals.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about Amdocs written into numbers like expected revenue, earnings, margins and a fair value that you can compare with today’s share price.
On Simply Wall St’s Community page, millions of investors use Narratives to connect what they believe about a company’s customers, products and risks to a forward financial forecast. This then flows through to a fair value that updates automatically when fresh information such as earnings, guidance changes or news appears.
That makes Narratives an easy tool to sense check whether you think Amdocs looks more attractive or less attractive at its current price. You can set your own assumptions, see the fair value that follows from those inputs and then check how much room there is between that fair value and the market price before you consider buying or selling.
For example, one Amdocs Narrative on the platform currently points to a fair value of about US$93.82 per share based on specific assumptions. Other users may build Narratives with higher or lower fair values, reflecting different views on future revenue, earnings, margins and the P/E they think is appropriate.
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.
