Let's talk about the popular Waters Corporation (NYSE:WAT). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$425 at one point, and dropping to the lows of US$328. 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 Waters' current trading price of US$334 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 Waters’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Waters?
According to my valuation model, Waters seems to be fairly priced at around 1.3% below my intrinsic value, which means if you buy Waters today, you’d be paying a fair price for it. And if you believe that the stock is really worth $338.25, then there’s not much of an upside to gain from mispricing. In addition to this, Waters has a low beta, which suggests its share price is less volatile than the wider market.
Can we expect growth from Waters?
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. Though in the case of Waters, it is expected to deliver a relatively unexciting earnings growth of 8.7%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in WAT’s future outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on WAT, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook 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.
So while earnings quality is important, it's equally important to consider the risks facing Waters at this point in time. At Simply Wall St, we found 2 warning signs for Waters and we think they deserve your attention.
If you are no longer interested in Waters, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.