If you are wondering whether Credo Technology Group Holding is priced attractively after its big run, the key question is how its current share price stacks up against its fundamentals.
The stock has pulled back recently, with a 7 day return of 9.5% decline, a 30 day return of 10.4% decline, and a year to date move of 21.6% decline, even after a 122.7% return over the past year and a very large 3 year gain.
Recent attention on Credo has focused on its position within the semiconductor space and investor sentiment around high growth, higher risk names. This helps explain some of the sharp moves in the share price. This backdrop matters because it can influence how much investors are prepared to pay for the stock at any given time.
On Simply Wall St’s valuation checklist, Credo currently scores 0 out of 6. In the sections that follow we will look at how different valuation approaches assess the share price today and then finish with a broader way to think about valuation that goes beyond any single model.
Credo Technology Group Holding scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow model takes estimates of the cash a company could generate in the future and discounts those back to what they might be worth in $ today. It is essentially a way of asking what all those future cash flows are worth in one present value number.
For Credo Technology Group Holding, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The company’s latest twelve month free cash flow is about $119.7 million. Analyst and extrapolated projections in this model estimate free cash flow at around $1.1b by 2035, with interim annual projections between 2026 and 2035 discounted back to today.
Adding these discounted cash flows together gives an estimated intrinsic value of $79.72 per share in this model. Compared with the current share price, this DCF output suggests the stock is around 40.8% overvalued on this specific set of assumptions.
For profitable companies, the P/E ratio is often a useful shorthand because it links what you pay per share directly to the earnings the business is currently generating. It lets you see how many dollars the market is willing to pay for each dollar of earnings.
What counts as a “normal” P/E depends on how fast investors expect earnings to grow and how confident they feel about the risks. Higher growth and lower perceived risk tend to support a higher P/E, while slower growth or higher uncertainty usually justify a lower one.
Credo Technology Group Holding currently trades on a P/E of 95.67x. That is above the broader Semiconductor industry average of 43.84x and above the peer group average of 66.90x. Simply Wall St’s Fair Ratio for Credo is 71.76x, which is a proprietary estimate of what the P/E might look like given factors such as the company’s earnings profile, its industry, profit margins, market cap and identified risks.
This Fair Ratio goes a step further than simple peer or industry comparisons because it adjusts for company specific characteristics rather than assuming all semiconductor stocks deserve similar multiples. Compared with the current 95.67x, the Fair Ratio of 71.76x indicates the shares are pricing in more optimism than this framework would imply.
Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, which let you write your own story for Credo Technology Group Holding by linking your assumptions for future revenue, earnings, margins and fair value to the share price today. You can then see in one place whether your Fair Value suggests the stock looks expensive or cheap versus the current price. That view is automatically refreshed when new news or earnings arrive. You can even compare very different perspectives, such as a more cautious Narrative that lines up with a Fair Value around US$72 and a more optimistic one closer to US$165, all published on the Community page and updated as millions of investors refine their thinking.
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.
