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Today we're going to take a look at the well-established Wesfarmers Limited (ASX:WES). The company's stock saw significant share price movement during recent months on the ASX, rising to highs of AU$70.66 and falling to the lows of AU$63.62. 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 Wesfarmers' current trading price of AU$65.34 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Wesfarmers’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Wesfarmers
What Is Wesfarmers Worth?
According to our valuation model, the stock is currently overvalued by about 31%, trading at AU$65.34 compared to our intrinsic value of A$49.88. Not the best news for investors looking to buy! In addition to this, it seems like Wesfarmers’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Wesfarmers?
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. With profit expected to grow by 32% over the next couple of years, the future seems bright for Wesfarmers. 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? WES’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe WES 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 WES 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 positive outlook is encouraging for WES, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.