If you are looking at FactSet Research Systems and wondering what to make of its current stock price, you are definitely not alone. After all, in the past week alone, the stock has lost 7.1% of its value. A 30-day slide of 9.5% adds to a year-to-date decline of nearly 30%. For long-term shareholders, the five-year return is still positive at 6.4%, but more recent performance might have you rethinking your strategy.
So, what is really driving this shift? Beyond general market volatility, a shift in investor risk appetite among technology and financial services companies seems to be one key factor. Market participants are re-evaluating growth stocks, and many firms in FactSet’s space have taken a hit. Still, with all the ups and downs, FactSet’s fundamentals are quietly attracting some fresh attention among value-minded investors.
That is where the valuation story gets interesting. Based on our valuation scorecard, FactSet is undervalued in four out of six key checks, giving it a value score of 4. That is something you do not see every day, especially for a company with FactSet’s pedigree in the financial data space.
In the next section, we will break down each of the major valuation approaches and see how FactSet stacks up on the numbers. Keep reading, because there is an even more insightful way to get to the heart of what this stock might truly be worth.
The Excess Returns model looks at how efficiently a company puts its capital to work, focusing on whether the returns from investments surpass the minimum required by shareholders. For FactSet Research Systems, this approach highlights the company’s ongoing ability to generate strong returns above its cost of equity.
Key figures from this model include a Book Value of $56.93 per share and a Stable EPS of $21.11 per share, with the latter based on consensus estimates from four analysts. FactSet’s average Return on Equity stands out at 30.32 percent, a mark of exceptional profitability compared to industry norms. The Stable Book Value, projected by six different analyst estimates, sits at $69.62 per share.
With a calculated Cost of Equity of $5.84 per share, FactSet delivers an excess return of $15.27 per share. This is a sign that its investments create significant value over what shareholders ordinarily might expect.
In summary, this model estimates FactSet’s intrinsic value at $357.22 per share, suggesting the stock currently trades at a 5.9 percent discount to its fair value. This places FactSet in the “about right” range, indicating the stock is mostly fairly valued with a slight tilt toward being undervalued.
The Price-to-Earnings (PE) ratio is a preferred metric for valuing profitable companies like FactSet Research Systems, as it connects a company’s profitability to its market price. Since FactSet has a solid track record of generating earnings, the PE ratio is an especially meaningful measure in this case.
Growth expectations and risks both play major roles in influencing what investors consider a fair PE ratio. Higher expected growth and lower risk often justify a higher PE, while companies with uncertain outlooks or more industry headwinds typically trade at lower multiples.
FactSet’s current PE ratio stands at 23.84x. This is below both the Capital Markets industry average of 27.28x and the peer average of 32.31x, indicating that the market is pricing FactSet at a discount relative to its own sector and direct rivals. However, to get a more tailored sense of what is fair for FactSet, Simply Wall St’s proprietary “Fair Ratio” comes into play. Based on a holistic assessment of FactSet’s earnings growth, market cap, profit margins, and sector-specific outlook, the Fair Ratio is 14.46x.
Unlike simple peer or industry benchmarks, the Fair Ratio provides a more nuanced valuation anchor as it factors in the company’s unique growth prospects and risk profile. This makes it a more relevant signal than just looking at what other companies are trading at.
With FactSet’s actual PE at 23.84x and a Fair Ratio of 14.46x, the stock appears to be trading well above what would be considered fair value based on its fundamentals and risk profile.
Earlier, we pointed out that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a simple yet powerful tool where you combine your perspective on a company, your story, along with your assumptions about its future revenues, earnings, and profit margins. In essence, a Narrative links a company’s business story to a well-informed forecast and, ultimately, to a fair value for its shares.
Narratives are designed to be easy and accessible, available within the Community page on Simply Wall St, and trusted by millions of investors around the world. They help you decide when to buy or sell by showing how your view of a company’s fair value compares to the current market price. Narratives are updated dynamically, so when new information such as earnings reports or news hits, your forecasts and fair value adjust in real-time.
For FactSet Research Systems, imagine two investors with very different outlooks: one uses optimistic growth assumptions and arrives at a fair value of $500 per share, while the other takes a more cautious stance and lands on $355. Narratives make these differences transparent, letting you decide which story and which price you believe in most.
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.
