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Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for TE Connectivity.

For a profitable company like TE Connectivity, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. A higher or lower P/E often reflects what the market is assuming about future growth and risk, with faster growth or lower perceived risk usually linked to higher “normal” multiples.

TE Connectivity currently trades on a P/E of 31.64x. That sits above the Electronic industry average P/E of 26.61x, while the peer group used here shows an average P/E of 47.27x. To go a step further, Simply Wall St also calculates a proprietary “Fair Ratio”. This estimates what P/E might make sense after considering factors such as the company’s earnings growth profile, profit margins, industry, market cap and stock specific risks.

For TE Connectivity, this Fair Ratio is 30.21x, which is slightly below the current 31.64x. Because the Fair Ratio incorporates company specific fundamentals rather than relying only on broad industry or peer comparisons, it can give a more tailored view of value. On this basis, TE Connectivity screens as somewhat expensive on earnings.

Result: OVERVALUED

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Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which simply means putting your own clear story about TE Connectivity behind the numbers you see on the screen.

A Narrative is your view of what the company does, where you think it could go, and how that might show up in future revenue, earnings and margins, all linked to a fair value that you can compare with today’s price.

On Simply Wall St, Narratives sit in the Community page and are designed to be quick to set up, easy to adjust, and automatically updated when new information such as news or earnings is reflected in the underlying estimates. This allows you to always see how your story compares with the current market price.

For TE Connectivity, one investor might build a Narrative that focuses on long term demand from vehicle electrification and factory automation, while another might set far more cautious assumptions about growth and profitability. Their fair values could therefore sit at very different levels and lead to different views about whether the current US$222.78 price looks attractive or stretched.

Do you think there’s more to the story for TE Connectivity? Head over to our Community to see what others are saying!

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.

Companies discussed in this article include TEL.

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