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Is It Time To Consider Buying The Sherwin-Williams Company (NYSE:SHW)?

Simply Wall St

Today we're going to take a look at the well-established The Sherwin-Williams Company (NYSE:SHW). The company's stock received a lot of attention from a substantial price increase on the NYSE over the last few months. 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. However, could the stock still be trading at a relatively cheap price? Let’s examine Sherwin-Williams’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Sherwin-Williams

Is Sherwin-Williams still cheap?

Sherwin-Williams appears to be overvalued by 35% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$550 on the market compared to my intrinsic value of $408.44. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Given that Sherwin-Williams’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Sherwin-Williams look like?

NYSE:SHW Past and Future Earnings, October 1st 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Sherwin-Williams’s earnings over the next few years are expected to increase by 96%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? SHW’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe SHW should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SHW for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for SHW, which means it’s worth diving deeper into other factors 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 Sherwin-Williams. You can find everything you need to know about Sherwin-Williams in the latest infographic research report. If you are no longer interested in Sherwin-Williams, 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 editorial-team@simplywallst.com. 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.