Johnson Controls International plc (NYSE:JCI)

The valuation multiples exhibit a period of significant expansion between 2019 and 2021, followed by a general contraction through 2023. This volatility is most pronounced in earnings-based multiples, while asset and revenue-based multiples show a more gradual arc of growth and subsequent decline.

Price to Earnings (P/E) Ratio

The P/E ratio experienced extreme volatility, dropping to a low of 5.74 in 2019 before spiking to a peak of 52.04 in 2020. Since that peak, a consistent downward trend has been observed, with the ratio normalizing to 19.92 by September 30, 2023.

Price to Operating Profit (P/OP) Ratio

A sharp increase in the P/OP ratio occurred between 2018 and 2020, rising from 9.92 to 34.10. Following this peak, the ratio has fluctuated within a range, ending the period at 21.34 in 2023, suggesting a moderation in the premium paid for operating profitability.

Price to Sales (P/S) Ratio

The P/S ratio trended upward from 0.98 in 2018 to a high of 2.33 in 2021. This was followed by a gradual decline over the next two years, returning to 1.37 by September 30, 2023, indicating a reduction in the valuation multiple applied to top-line revenue.

Price to Book Value (P/BV) Ratio

A consistent growth pattern was observed in the P/BV ratio from 2018 through 2021, moving from 1.46 to a peak of 3.14. Similar to the other multiples, a downward correction followed, with the ratio decreasing to 2.23 by the end of the observed period.

The relationship between share price, earnings per share (EPS), and the resulting price-to-earnings (P/E) ratio exhibits significant volatility between 2018 and 2023. While the share price peaked in 2021, the valuation multiple was most heavily influenced by extreme fluctuations in bottom-line earnings.

Earnings Performance and Impact

Earnings per share experienced substantial instability, peaking at 7.36 in 2019 before dropping sharply to 0.87 in 2020. This collapse in earnings created a distinct disconnect between fundamental performance and market valuation, as the share price remained resilient during the 2020 period.

Price-to-Earnings Ratio Dynamics

The P/E ratio reached a minimum of 5.74 in 2019, coinciding with the EPS peak. Conversely, it spiked to a period high of 52.04 in 2020. This expansion indicates that market sentiment remained elevated or anticipated a recovery despite the precipitous decline in realized earnings.

Valuation Convergence and Normalization

From 2021 through 2023, a consistent contraction in the P/E ratio is observed, descending from 33.70 to 19.92. This downward trend occurred in tandem with a decline in share price from a high of 78.33 and a period of relative EPS stabilization, suggesting a normalization of the valuation multiple as the market adjusted its expectations.

The valuation of the common stock based on operating profit exhibited significant volatility between 2018 and 2023, characterized by a dramatic expansion of the price multiple during the early part of the period followed by a period of correction and stabilization.

Share Price Dynamics

The share price experienced a sustained increase from 33.34 USD in 2018 to a peak of 78.33 USD in 2021. Following this peak, a downward trend emerged, with the price receding to 54.10 USD by September 30, 2023.

Operating Profitability Trends

Operating profit per share showed substantial instability. After starting at 3.36 USD in 2018, it declined sharply to a low of 1.33 USD by 2020. A significant recovery occurred in 2021, reaching 3.63 USD, before stabilizing in the range of 2.44 USD to 2.54 USD during 2022 and 2023.

Price to Operating Profit (P/OP) Analysis

The P/OP ratio shifted from a relatively low multiple of 9.92 in 2018 to a peak of 34.10 in 2020. This expansion was primarily driven by the contraction in operating profits occurring simultaneously with a rising share price. From 2021 onward, the ratio fluctuated between 21.34 and 27.19, indicating that while the extreme valuation peak of 2020 had subsided, the market continued to assign a higher multiple to operating profits than was observed in 2018.

Analysis indicates a period of valuation decoupling between 2019 and 2020, where the share price appreciated despite falling operational profits. The subsequent years demonstrate a partial realignment as operational profits recovered and the share price underwent a correction.

An analysis of the Price to Sales (P/S) ratio reveals a period of significant valuation expansion followed by a subsequent contraction over the six-year period ending September 30, 2023. The P/S ratio increased steadily from 0.98 in 2018 to a peak of 2.33 in 2021, before trending downward to 1.37 by the end of the observed period.

Share Price Dynamics

The share price exhibited a sharp upward trajectory between 2018 and 2021, rising from 33.34 to 78.33. This substantial increase served as the primary driver for the expansion of the valuation multiple. Following the 2021 peak, the share price entered a period of decline, falling to 66.40 in 2022 and further to 54.10 in 2023.

Sales per Share Trends

Sales per share remained relatively stable with a slight decline between 2018 and 2020, moving from 33.98 to 30.83. However, a consistent growth pattern emerged from 2021 onward, with sales per share increasing to 33.60, then 36.84, and reaching 39.36 by September 30, 2023. This indicates an improvement in revenue generation per share during the period when the valuation multiple was declining.

Valuation Multiple Correlation

The P/S ratio reached its zenith in 2021 at 2.33, indicating a period where the market attributed a high premium to the company's revenue. The subsequent reduction of the ratio to 1.37 by 2023 is notable because it occurred despite the simultaneous increase in sales per share. This suggests that the compression in the P/S ratio was driven entirely by the decline in share price rather than a failure in revenue performance, reflecting a market-led correction in the valuation multiple.

The valuation of the common stock between September 30, 2018, and September 30, 2023, exhibits a period of significant expansion followed by a moderate correction. The primary driver of these fluctuations is the volatility in the share price relative to a consistently stable book value per share.

Share Price Performance

A consistent upward trajectory is observed from 2018 to 2021, with the price rising from US$ 33.34 to a peak of US$ 78.33. This growth represents a substantial increase in market valuation over a three-year period. Following this peak, a downward trend occurred in 2022 and 2023, with the price retreating to US$ 54.10 by the end of the analyzed period.

Book Value Per Share (BVPS) Stability

The book value per share remained relatively stagnant throughout the six-year window. After an initial increase to US$ 25.62 in 2019, the value fluctuated within a narrow range between US$ 23.69 and US$ 24.93. This lack of significant movement indicates that the accounting-based equity value did not experience substantial growth or erosion.

Price to Book Value (P/BV) Ratio Trends

The P/BV ratio mirrored the movement of the share price, increasing from 1.46 in 2018 to a peak of 3.14 in 2021. Because the BVPS remained flat, the expansion of the P/BV ratio was driven exclusively by market sentiment and price appreciation rather than an increase in underlying book value. The subsequent decline to 2.23 by September 30, 2023, reflects a contraction in the premium investors were willing to pay relative to the company's net asset value.