Parkev Tatevosian, CFA on $VRT (Oct 28, 2026)

On September 16, I evaluated Vertiv Holdings, and as its business flourished, I felt the valuation was overpriced even at the roughly $240 per share it was trading at on that date.

Since then, the stock price has fallen even further. The price is now $210 as the company prepares to announce its quarterly financial results on October 28. I wanted to look at the business before the announcement to see if it was a buying opportunity before those results were released, what I would like to see in it, and to determine if it looked attractive at this lower price.

You can see that the price movement of Vertiv stock here has not been good. Over the past six months, the stock has fallen by more than 35%. The stock is currently trading at $210.

However, if we look at the chart from the beginning of the year, things look much better. The stock is still up more than 28% despite its significant decline over the past six months.

The year began with excessive force, rising to over $350 at that time. Looking ahead, Wall Street analysts who follow Vertiv expect very strong earnings per share growth over the next few years.

Wall Street analysts who follow Vertiv expect earnings per share growth of 40% for the next few years. What makes it even more impressive is that the company's cash flow from operations to sales ratio is approaching record levels at 29.2%.

It is the highest percentage the company has ever achieved.

Therefore, while revenues are increasing and rising as a result of demand for artificial intelligence, the company's profit margins and operating cash flows are improving at the same time.

For me, this is a sign of strong organic demand for the company’s products and services. This is what I like to see to determine whether the company is actually experiencing a structural shift towards increased revenue.

Returns on invested capital are also approaching record levels of 24.2%, after being at negative levels just a few years ago. So, business is booming on all fronts. Revenues are steadily increasing.

Demand for its products and services exceeds expectations. At the same time, the company's profit margins are also increasing.

But this significant drop in share price over the past six months has made Vertiv's stock trade at a more reasonable valuation. Previously, the stock was trading at a forward price-to-earnings ratio above 40, and has now dropped to just under 23.

So, its forward price-to-earnings ratio has dropped by almost half.

According to this valuation metric alone, the stock appears to be undervalued. However, I like to look at the evaluation holistically. When I look at the valuation using my discounted cash flow model, the stock appears to be slightly overvalued.

So, I calculated a value for the company at 164. To estimate this value, I project what I feel the company will generate in free cash flows from now until the very distant future.

I then discount those cash flows using the weighted average cost of capital to determine the stock's value today.

My reason for deducting those future cash flows is that the value of money in the future is less for us than the value of money in our pockets today. I hope you can all agree that if I offered you $100 today, you would prefer to have that $100 in your pockets today rather than five years from now.

Well, that's obvious. You would prefer to receive $100 today. But what would you prefer to receive instead of the promised $100 five years from now? Would you accept $75 instead of a promise of $100 five years from now?

So, here we come to calculating the present value, right? There is a certain value that you will accept instead of that hundred dollars five years from now. Otherwise, you will say, "Do you know?"

"I will wait." Isn't that so? If I offered you $20 instead of $100 in 5 years, you might say, "You know what?" I would accept the $100 in 5 years instead of the $20 today.

Therefore, by doing this calculation, the company is valued at $164 today compared to its market price of $209. So, even after applying a safety margin of 5 to 10%, the stock appears to be slightly overvalued using this valuation metric.

Overall, the company appears to be fairly valued because one metric shows me an undervaluation, while another shows an overvaluation. So, overall, I would say the company appears to be fairly valued.

As I shared with you, I classified the stock as a hold position, not a buy opportunity, on September 16 when I last valued it, and I reiterate that classification before the company's earnings results are announced tomorrow.