Is Westlake (WLK) Trading at a Significant Discount?

The question of whether Westlake Chemical (WLK) is undervalued hinges on a delicate balance between its current valuation metrics and the operational risks tied to its business segments. As of October 2025, the stock trades at $79.22, below its estimated fair value of $88.86-a 10.8% discount-suggesting potential misalignment with market expectations, according to a Yahoo analysis. However, this apparent undervaluation must be weighed against Westlake's mixed financial performance, particularly the struggles of its Performance & Essential Materials (PEM) segment and the resilience of its Housing & Infrastructure Products (HIP) division.

Valuation Metrics: A Tale of Two Multiples

Westlake's valuation ratios paint a complex picture. Its enterprise value (EV)/EBITDA ratio stands at 10.34, per StockAnalysis data, a figure that appears elevated compared to the building materials sector's average of 11.4x, according to a PCE report. This suggests that, at least in the context of its HIP segment-which dominates its EBITDA contributions-Westlake's valuation is in line with industry norms. However, the company's forward price-to-earnings (P/E) ratio of 87.74 (StockAnalysis) is strikingly high, driven by analysts' optimism about its projected earnings growth from $6.48 to $7.44 per share in 2026, according to MarketBeat estimates. This forward-looking metric implies that the market is pricing in a recovery, even as Q2 2025 earnings reported a negative EPS of -$0.09 (MarketBeat).

The price-to-book (P/B) ratio of 0.99 (StockAnalysis) further complicates the narrative. Trading near book value, Westlake appears to offer a buffer against downside risk, particularly in a sector where asset-heavy companies often trade at premiums. Yet this metric also underscores the market's skepticism about the company's ability to generate returns on its capital, especially given the PEM segment's recent underperformance.

Operational Risks: PEM's Decline vs. HIP's Resilience

The root of Westlake's valuation tension lies in its dual business segments. The PEM segment, which includes commodity chemicals, has seen a dramatic decline in adjusted EBITDA-from $600 million in H1 2024 to $112 million in H1 2025, per an Investing.com report. This collapse reflects broader industry headwinds, including weak demand for petrochemicals and margin compression. In contrast, the HIP segment has remained a fortress of stability, generating consistent EBITDA between $900 million and $1 billion annually since 2022, as noted in the same Investing.com report. This segment's resilience has justified Truist Securities' revised 2026 price target of $90, based on an 8.0x EV/EBITDA multiple, according to a Truist report, which is slightly above the commodity chemical peer average of 7.5x reported in that note.

The disparity between these segments highlights a critical risk: Westlake's valuation is increasingly dependent on HIP's performance, while PEM's struggles could drag on earnings in the near term. Analysts at S&P Global have even revised the company's credit outlook to "negative" due to weaker chemicals demand, as covered in the Investing.com report, a warning that underscores the fragility of its core operations.

Earnings Outlook: A Path to Justification?

Despite the near-term challenges, Westlake's forward-looking earnings trajectory offers a potential catalyst for re-rating. The projected 14.81% increase in EPS from $6.48 to $7.44 per share by 2026 (MarketBeat) could validate the market's optimism, particularly if the HIP segment continues to outperform. However, this optimism is tempered by the fact that the Materials sector's trailing P/E ratio is 24.80, according to SiblisResearch data, while Westlake's forward P/E of 87.74 (StockAnalysis) implies a premium to current industry multiples. This disconnect suggests that investors are betting on a structural shift in demand for infrastructure-related products, rather than a broad recovery in the chemicals sector.

Conclusion: Misalignment or Risk Premium?

Westlake's valuation appears to reflect a hybrid of misalignment and risk premium. The stock's 10.8% discount to fair value, noted in the Yahoo analysis, and P/B ratio near book value (StockAnalysis) suggest undervaluation relative to its asset base and HIP segment's stability. However, the elevated forward P/E (StockAnalysis) and PEM segment's underperformance indicate that the market is pricing in significant operational risks. For investors, the key question is whether the HIP segment's resilience and infrastructure tailwinds will outweigh the PEM segment's drag. If the company can execute on its operational improvements and capitalize on infrastructure demand, the current discount may represent an opportunity. But if the PEM segment's challenges persist, the valuation could be a warning sign rather than a bargain.