Viavi Solutions (VIAV) Stock May Trade At A Premium After Army Testing Win

Viavi Solutions has seen its share price surge over the past few years, and that kind of move always raises a practical question for investors who care about cash flows. With the stock now reflecting a very different market view than a few years ago, the issue is whether the current valuation still lines up with the cash the business is expected to generate.

• Over the past 3 years, Viavi Solutions has delivered a return of about 364.5%, which puts a lot of weight on whether its underlying cash generation can support such a step up in market value.

• Recent contracts with the U.S. Army for T/Rx systems and an expanded partnership with Calnex Solutions may support expectations for more stable or better quality cash flows from defense and next generation network testing work.

• If you'd rather focus on sales, this one's for you. See why Viavi Solutions's 5.7x P/S tells a different valuation story .

The issue now is whether Viavi Solutions' current share price, after that kind of run and on the back of these developments, is adequately supported by its cash flows when measured against the Discounted Cash Flow (DCF) intrinsic value estimate.

If you want a wider watchlist of businesses where valuation is anchored in cash generation rather than headlines, a focused screener of 35 high quality undervalued stocks can be a useful next step.

Does Viavi Solutions Look Pricey on Cash Flow?

The Discounted Cash Flow (DCF) model here looks at the cash Viavi Solutions might return to shareholders over time and discounts it back to today. On the latest twelve month numbers, the business produced about $80.8m of free cash flow, and the model then assumes those cash flows grow from that base rather than shrink.

Analyst inputs for Viavi Solutions push projected free cash flow into the mid $200m to low $500m range over the next decade, which implies a meaningful ramp up from where the company sits today. Despite the recent U.S. Army T/Rx contract pointing to potentially steadier demand for its testing gear, the DCF output still places Viavi Solutions' estimated intrinsic value meaningfully below the current share price of $34.98. Find out what Viavi Solutions could be worth using our Discounted Cash Flow (DCF) estimate .

The Viavi Solutions Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the Viavi Solutions valuation gap leaves off. They set out the specific growth, margin and earnings paths that would need to hold for the stock to be worth noticeably more or less than today, and each one presents Viavi Solutions' fair value as a thesis about the business that you can track over time, rather than a single frozen snapshot. Narratives for Viavi Solutions live on Simply Wall St's Community page.