If you are thinking about what to do with West Pharmaceutical Services stock, you are not alone. The recent moves in the price chart have sparked fresh debate among investors. After rising 3.4% over the past week and 5.4% in the last month, the stock has signaled some renewed optimism. Still, with year-to-date returns at -17.6% and a decline of 7.5% over the past year, it is clear the journey has not been without turbulence. Over three years the shares are up a healthy 17.1%, though the five-year view shows a modest dip of 2.8%.
Some of this volatility can be linked to broader market shifts in the healthcare and life sciences sector, where changing technology adoption and shifting global demand continue to recalibrate investor expectations. West Pharmaceutical Services often feels the push and pull of sentiment as market participants weigh its steady business model against new competition and evolving risks.
When it comes to valuation, the numbers tell a straightforward story. At least using classic yardsticks, based on six widely used valuation checks, West Pharmaceutical Services comes away with a value score of 0, meaning there are no clear signals it is undervalued on the usual metrics right now.
Of course, there are several ways to look at valuation, and each paints a slightly different picture. In the next section, we will break down these methods and see where West Pharmaceutical Services lines up. You will also discover an even better way to think about valuation, which could shift your perspective entirely.
West Pharmaceutical Services scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and discounting them back to today’s dollars. This approach gives investors a sense of what the business is intrinsically worth, based on how much free cash it is expected to generate in the future.
For West Pharmaceutical Services, the current Free Cash Flow (FCF) is $323.6 million. Analysts project that annual FCF could reach $542 million by 2028, with estimates further into the future extrapolated from both analyst forecasts and growth assumptions. Over the next decade, free cash flows are expected to continue growing, but all projections remain under $1 billion, so the numbers stay in the millions. These calculations use a 2 Stage Free Cash Flow to Equity model, taking into account both near-term analyst estimates and longer-term expectations.
After running these cash flows through the DCF model, the estimated intrinsic value for West Pharmaceutical Services is $185.06 per share. At the moment, the stock trades at a 46.2% premium to this fair value, which suggests that shares are currently overvalued according to this model’s projections.
Our Discounted Cash Flow (DCF) analysis suggests West Pharmaceutical Services may be overvalued by 46.2%. Find undervalued stocks or create your own screener to find better value opportunities.
The Price-to-Earnings (PE) ratio is often considered the go-to valuation metric for profitable companies like West Pharmaceutical Services. This ratio helps investors quickly compare how much the market is willing to pay for a company’s current earnings. Importantly, what constitutes a “fair” PE ratio is influenced by a firm’s expected earnings growth and underlying business risks. Generally, companies with higher growth and lower risk earn a premium, while riskier or slower-growing businesses trade at lower multiples.
At present, West Pharmaceutical Services trades at a PE ratio of 39.9x. That is substantially higher than the average PE for its Life Sciences industry peers, which stands at 33.0x, and notably higher than the peer group average of 23.4x. These comparisons suggest investors are attaching a premium to the company’s earnings relative to its sector and direct competitors.
However, Simply Wall St has developed a proprietary “Fair Ratio” model, which sets a tailored PE multiple for each company based on factors unique to its situation, such as its historical and expected earnings growth, profit margins, market cap, industry profile, and company-specific risks. This method often provides a more accurate yardstick than generic industry or peer averages because it adjusts for nuances that could impact what the business is truly worth.
For West Pharmaceutical Services, the Fair Ratio is calculated to be 25.3x, well below the company’s actual PE of 39.9x. This significant gap suggests the stock is trading far above what would typically be considered a justifiable price given its fundamentals.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple yet powerful method for making smarter investing decisions. A Narrative is your own story and perspective on a company, connecting what you know about West Pharmaceutical Services’ business with your expectations for its future performance, financial forecasts, and ultimately, what the company is worth today. Narratives tie together qualitative ideas like growth drivers, risks, or market opportunities with hard numbers like revenue, margins, and earnings, making it easy to see how your view translates into fair value.
Narratives are immediately accessible, with no spreadsheet skills required, and millions of investors use them on the Simply Wall St Community page to refine their thinking alongside real-time peer updates. By building your Narrative, you can clearly compare the Fair Value you calculate to the current market Price, helping you decide when the stock might be undervalued or overvalued for your own situation. Whenever new earnings, news, or insights emerge, Narratives update dynamically to reflect the latest facts, so you can keep your analysis relevant without starting from scratch.
For example, right now analyst Narratives for West Pharmaceutical Services span a wide range. Some see the company’s fair value as high as $350 thanks to optimism about GLP-1 growth and operational improvements, while others are more cautious, setting a price target closer to $260 due to market and risk factors.
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.
