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Is There Now An Opportunity In West Pharmaceutical Services, Inc. (NYSE:WST)?

Today we're going to take a look at the well-established West Pharmaceutical Services, Inc. (NYSE:WST). The company's stock saw a significant share price rise of over 20% in the past couple of months on the NYSE. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at West Pharmaceutical Services’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for West Pharmaceutical Services

What's the opportunity in West Pharmaceutical Services?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that West Pharmaceutical Services’s ratio of 58.55x is trading slightly above its industry peers’ ratio of 57.9x, which means if you buy West Pharmaceutical Services today, you’d be paying a relatively sensible price for it. And if you believe that West Pharmaceutical Services should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like West Pharmaceutical Services’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will West Pharmaceutical Services generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 37% over the next couple of years, the future seems bright for West Pharmaceutical Services. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in WST’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at WST? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on WST, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for WST, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about West Pharmaceutical Services as a business, it's important to be aware of any risks it's facing. For example - West Pharmaceutical Services has 1 warning sign we think you should be aware of.

If you are no longer interested in West Pharmaceutical Services, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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