NewMarket's Profitability Premium: Justified or Overdue for a Reassessment?

In the volatile world of chemical manufacturing, NewMarket Corporation (NYSE: NEU) has carved out a reputation for resilience. As of Q3 2025, the company's financial performance starkly contrasts with its peers, raising a critical question for investors: Does its superior profitability justify a valuation premium, or is the market underestimating the challenges ahead?

Profitability Outpaces Peers, But at What Cost?

NewMarket's recent results underscore its dominance in the petroleum additives market. According to a report by Seeking Alpha, the company's net margin of 15.93%NewMarket's Profitability Could Make It More Expensive Than Its Peers^[1] dwarfs the industry average, while its Q2 2025 revenue decline of 1.54%Newmarket Corporation Comparisons to its Competitors and Industry Peers^[2] was far less severe than the 7.19% contraction seen among competitors. Even more striking, its net income dipped by just 0.34%Newmarket Corporation Comparisons to its Competitors and Industry Peers^[2], compared to an 89.52% collapse for peers. This performance has translated into a 1.29% market share gain in the petroleum additives segmentNewmarket Corporation Comparisons to its Competitors and Industry Peers^[2], a testament to its operational discipline.

However, profitability alone does not guarantee sustainable value creation. While NewMarket's return on equity (ROE) of 0.34NewMarket Return On Equity vs Current Valuation | NEU^[3] places it among the top performers in the sector, analysts caution that gross profit margins and net income trends could signal near-term headwindsBreaking Down NewMarket Corporation (NEU): Key Insights for^[4]. The question remains: Can the company maintain these margins amid rising input costs and regulatory pressures?

Valuation Metrics Suggest a Discount, Not a Premium

Despite its strong fundamentals, NewMarket's valuation multiples tell a different story. As of September 2025, the stock trades at a P/E ratio of 15.9xNewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5], significantly below the peer average of 21.3x and the broader US Chemicals industry's 26.8xNewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5]. Similarly, its EV/EBITDA of 11.2xNewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5] and P/FCF of 14.48NewMarket (NEU) Financial Ratios - Stock Analysis^[6] are well below industry benchmarks, suggesting the market is pricing in caution rather than optimism.

This valuation gap is further amplified by NewMarket's P/B ratio of 4.76NewMarket (NEU) Financial Ratios - Stock Analysis^[6], which, while higher than its 2024 level of 2.35NewMarket (NEU) Financial Ratios - Stock Analysis^[6], remains far below the peer average of 21.3xNewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5]. In essence, the company's stock appears undervalued relative to both its financial performance and its peers' lofty multiples.

The Case for a Premium: Quality at a Discount

Proponents argue that NewMarket's valuation reflects its superior quality. Its 27.2% EBITDA marginNewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5] and consistent dividend paymentsNewMarket's Profitability Could Make It More Expensive Than Its Peers^[1] position it as a defensive play in a cyclical industry. Moreover, its ability to outperform peers during downturns—such as the Q2 2025 revenue dip—demonstrates operational resilience. As SimplyWall St notes, “NewMarket's conservative valuation metrics suggest the market is not fully pricing in its long-term durability”NewMarket (NYSE:NEU) Stock Valuation, Peer Comparison & Price^[5].

Yet, this argument hinges on the assumption that NewMarket's profitability can persist. If input costs rise or demand for petroleum additives softens further, the company's margins could face pressure. Investors must weigh these risks against the current discount.

Conclusion: A Compelling Case for Selective Investors

NewMarket's valuation multiples and profitability metrics present a compelling case for investors seeking value in the chemical sector. While its P/E, P/B, and P/FCF ratios suggest it is undervalued relative to peers, its strong EBITDA margins and market share gains justify a cautious optimism. However, the sustainability of its profitability remains a key unknown. For those willing to bet on NewMarket's operational discipline, the current discount offers an attractive entry point—but not without vigilance.