Watsco, Inc. (NYSE:WSO), which is in the trade distributors business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$170 at one point, and dropping to the lows of US$154. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Watsco's current trading price of US$160 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Watsco’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Watsco worth?
According to my valuation model, Watsco seems to be fairly priced at around 8.9% below my intrinsic value, which means if you buy Watsco today, you’d be paying a fair price for it. And if you believe the company’s true value is $175.85, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Watsco’s low beta implies that the stock is less volatile than the wider market.
What does the future of Watsco look like?
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 a double-digit 13% over the next couple of years, the outlook is positive for Watsco. 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 WSO’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on WSO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Watsco. You can find everything you need to know about Watsco in the latest infographic research report. If you are no longer interested in Watsco, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.