Element Solutions Inc (ESI): what the price requires
At today's price, Element Solutions Inc (ESI) is priced for today's economics sustained for ~8.3 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/ESI
Headline
| Field | Value |
|---|---|
| Ticker | ESI |
| Company | Element Solutions Inc |
| Current price | $39.82/sh |
| Composition | Electronics 70% / Specialties 30% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 23.9% |
| Operating margin today | 14.1% |
| Margin expansion implied | +9.8pp |
| Must persist for | 8.3y |
| Multiple paid | 31x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 10.4% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.9 years.
Reconcile: at the x-ray's 9.3% required return this reads ~6.2 years; the models below use their own rates.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | -0.27σ |
| cohort percentile (of 76 peers) | 84 |
| sustained it ~8.3 years at this level | 19% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 8.24x | 5 | expensive |
| Earnings | 9.63x | 2 | expensive |
| Relative | 2.31x | 3 | expensive |
| Growth | 1.03x | 1 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.
Per-Model Detail (n=11)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $0.00 | — | no | Negative/zero FCF — equity value floored at $0 |
| DCF Exit Multiple | Growth | $0.00 | — | no | Negative/zero FCF or EBITDA — equity value floored at $0 |
| Relative Valuation | Relative | $19.52 | 2.04x | yes | P/E 29.38x (blended: static sector reference 14x + trailing (TTM) 65x), scenarios: 24.2x / 29.4x / 34.6x (bear / base = reference held flat / bull), EV/EBITDA 12.12x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $6.60 | 6.03x | yes | BV/sh $11.22, ROE (TTM) 5.4%, ke 9.3% |
| Two-Stage Excess Return | Asset | $4.83 | 8.24x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $38.60 | 1.03x | yes | Rev $2.8B, growth 13% (input: historical growth; tapered), Terminal P/S: 2.9x / 3.5x / 4.1x (bear / base = today's held flat / bull, cap 12x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $2.99 | 13.32x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.32B × (1−32%) / WACC 8.2% → EPV (no growth) |
| Residual Income | Asset | $4.61 | 8.64x | yes | BV $11.22 + 5yr PV of (ROE (TTM) 5.4% − Kₑ 9.3%) × BV; BV grows 3.5%/yr |
| Graham Number | Asset | $12.51 | 3.18x | yes | √(22.5 × EPS $0.62 × BVPS $11.22) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $9.77 | 4.08x | yes | EBITDA $0.53B × sector EV/EBITDA 8.0x |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $0.52 | 76.57x | yes | EPS $0.62 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | $2.23 | 17.85x | yes | BV $11.22 × (ROIC 1.6% / WACC 8.2%) |
| P/Sales Sector | Relative | $17.22 | 2.31x | yes | Revenue $2.80B × sector P/S 1.5x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $6.70 | 5.94x | yes | EPS $0.62 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $2.0b |
| Net debt / NOPAT (after-tax) | 7.61x |
| Net debt / operating income (pre-tax) | 5.16x |
| Share count CAGR (buyback) | -0.6% |
| Burning cash | yes |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Element Solutions sells sticky, highly-technical specialty chemistries into electronics manufacturing, products that are "only a small portion of our customers' cost yet essential, with its Electronics segment growing 15% organically on AI-infrastructure and data-center demand.
- The biggest specific risk is cyclicality plus valuation: the electronics cycle is historically volatile, and at roughly 34 times trailing operating income only the forward-growth method reaches the price, which embeds a near-28% margin held for nearly a decade.
- What to watch next is whether Electronics organic growth and the adjusted EBITDA margin (recently 27.8%, up 170 basis points) hold as AI demand evolves, against net debt of about five times operating income.
Bull Case
Element Solutions is best read as a growth company wearing a chemicals label, and the distinction changes how the numbers should be interpreted. About 70% of the business is Electronics, the specialty chemistries that go into circuit boards, semiconductor packaging, and assembly. These are not commodity chemicals; they are "highly-technical service and support" products that the company says "typically represent only a small portion of our customers' cost while being essential to their manufacturing. A small cost that determines whether the customer's product works is the textbook definition of pricing power and stickiness. That is why the price embeds a margin near 27% against a GAAP operating margin of 13.4%: the reported figure is weighed down by acquisition amortization, and the cash margin the business actually runs is far higher.
The growth is concentrated in exactly the right place. The Electronics segment grew 15% organically in the first quarter, driven by demand tied to AI infrastructure, data-center hardware, and high-performance electronics. Total net sales rose 41% to $840 million, with 10% of that organic and the rest from the Micromax and EFC Gases acquisitions. Adjusted EBITDA grew 26% with the margin expanding 170 basis points to 27.8%, and management raised full-year adjusted EBITDA guidance. The company is selling the enabling chemistries for the same AI build-out driving the largest capital cycle in technology, and it is doing so with expanding margins.
The stage of the business is what justifies the durability bet. Element Solutions is past the early, speculative phase, it is profitable, cash-generative, and shrinking its share count slightly, but it still has a genuine growth runway in advanced packaging and high-performance electronics. On the valuation lenses only the growth-discounted-cash-flow method reaches the price, which is the market paying for that runway. Net debt is about $2.0 billion, roughly five times trailing operating income, which is real leverage but serviceable for a business with this cash-margin profile and a record of deleveraging between acquisitions. For an investor, the bull case is a sticky, high-cash-margin specialty platform levered to AI-driven electronics demand, growing organically in the mid-teens in its core segment.
Bear Case
The external variable with the most leverage on this thesis is the electronics cycle, and the price is treating a cyclical peak as if it were a permanent plateau. Element Solutions' Electronics segment is riding the AI-infrastructure and data-center wave, which is precisely the kind of demand surge that can pull forward years of orders and then normalize. Semiconductor and electronics end-markets are historically among the most cyclical in industry, and a company that just grew its core segment 15% organically on AI demand is exposed to that demand cooling. The price embeds a margin near 27% sustained for nearly a decade; if the AI build-out moderates or the broader electronics cycle turns, both the growth and the incremental margin that the valuation depends on compress at the same time.
The valuation is the second pressure, and it is severe. At roughly 34 times trailing operating income, the static methods price the company at a fraction of its quote, the earnings-power lens at a small fraction, with only the forward-growth lens reaching the price. That structure has no valuation floor: the entire premium rests on the durability of the growth and the margin. Even acknowledging that the GAAP operating margin understates the cash margin because of amortization, the price still requires the cash margin to expand from its current level and hold there for years. A specialty-chemicals company priced like a secular-growth technology supplier carries the de-rating risk of the latter without the asset-light economics that usually accompany it.
The structural exposures compound the macro sensitivity. Roughly half of the Assembly Solutions business is metal content whose price "fluctuations are generally passed through to our customers," which protects the margin but inflates and deflates the revenue line with metal prices, making reported growth noisier than the underlying volume. The company carries about $2.0 billion of net debt, roughly five times operating income, and its "ability to meet these financial covenants depends upon the future successful operating performance of our businesses," so a downturn that pressures cash flow also tightens the covenant headroom. Significant foreign operations add currency risk to the reported results. The bear case is not that Element Solutions is a weak business; it is a good one. It is that a richly priced, leveraged, cyclically exposed specialty supplier is being valued for uninterrupted AI-driven growth, and the electronics cycle is the one variable that history says will eventually interrupt it.
Valuation
The price is making a long-duration growth-and-margin bet. At roughly 34 times trailing operating income, it requires Element Solutions to lift its margin from a reported 13.4% toward 27% and sustain elevated growth for nearly a decade. A key piece of context softens the apparent extremity: the GAAP operating margin is depressed by acquisition amortization, and the company's adjusted EBITDA margin already runs near 28%, close to the level the price embeds. So the bet is less about reaching the margin and more about holding it, and holding the growth, for the long horizon the price assumes.
The methods leave no ambiguity that this is a growth-premium stock, and the spread is wide. Asset value and earnings power both price the company far below its quote, peer multiples also read rich, and only the forward-growth lens reaches the price. When only that lens supports the valuation, the entire premium is a durable-compounding bet the static frames structurally cannot credit. The earnings-power lens reading at a small fraction of the price is partly an amortization artifact, but even adjusting for that, the price sits well above where peer specialty-chemicals multiples land, so the premium is genuine and rests on the Electronics segment's AI-linked growth continuing.
Solvency is moderate leverage that the cash-margin profile can carry. Net debt is about $2.0 billion, roughly five times trailing operating income, which is real but serviceable for a business generating high cash margins, and the company has a record of deleveraging between acquisitions while keeping the share count roughly flat. The covenant dependency on operating performance is the watch item if the cycle turns. The decisive variable is the durability of Electronics growth: the segment grew 15% organically on AI demand and the adjusted margin is expanding, which is the engine behind the price, but at 34 times operating income the valuation requires that momentum to persist for years, so any normalization of the electronics cycle is what the price is most exposed to.
Catalysts
The Q1 2026 report was the central recent catalyst and it was a strong beat-and-raise. Net sales rose 41% to $840 million, with 10% organic growth and the remainder from the Micromax and EFC Gases acquisitions, while adjusted EBITDA grew 26% to $162.3 million and the adjusted EBITDA margin expanded 170 basis points to 27.8%. The standout was the Electronics segment, which grew 15% organically on demand tied to AI infrastructure, data-center hardware, and high-performance electronics. On the strength of the quarter, management raised full-year adjusted EBITDA guidance to a $665 to $685 million range and signaled high-teens adjusted EPS growth.
Acquisitions remain part of the growth model. The Micromax and EFC Gases and Advanced Materials deals contributed to the reported sales jump and extend the company's electronics-materials reach. Element Solutions has historically paired bolt-on M&A with organic growth, using its cash generation to deleverage between deals.
Into the coming quarters, the figures to watch are Electronics organic growth, since the AI-linked demand is the engine behind both the growth and the premium valuation, the adjusted EBITDA margin trajectory after the recent expansion, and the integration of the recent acquisitions. The broader electronics and semiconductor cycle is the macro driver that sits underneath the segment, and metal-price pass-throughs will keep the reported revenue line noisier than the underlying volume. Continued mid-teens Electronics growth with the margin holding would confirm the durability the price assumes.
Peer Cohorts (Per Segment, With Filing Citations)
Electronics (reported)
- ENTG (Entegris, Inc.)
- (no filing in the citation store)
- IOSP (INNOSPEC INC.)
- (no filing in the citation store)
- FUL (FULLER H B CO)
- (no filing in the citation store)
- NEU (NEWMARKET CORPORATION)
- (no filing in the citation store)
- CBT (Cabot Corporation)
- (no filing in the citation store)
Specialties (reported)
- KWR (QUAKER CHEMICAL CORPORATION)
- (no filing in the citation store)
- IOSP (INNOSPEC INC.)
- (no filing in the citation store)
- ASH (ASHLAND INC.)
- (no filing in the citation store)
- NEU (NEWMARKET CORPORATION)
- (no filing in the citation store)
- CBT (Cabot Corporation)
- (no filing in the citation store)
- AVNT (AVIENT CORPORATION)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings release