When Should You Buy Seven West Media Limited (ASX:SWM)?

Seven West Media Limited (ASX:SWM), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the ASX. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Seven West Media’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Seven West Media

Is Seven West Media still cheap?

The stock is currently trading at AU$0.38 on the share market, which means it is overvalued by 33% compared to my intrinsic value of A$0.29. This means that the opportunity to buy Seven West Media at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Seven West Media’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Seven West Media generate?

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. However, with an expected decline of -0.6% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Seven West Media. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? If you believe SWM is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. 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 tabs on SWM for some time, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing Seven West Media at this point in time. Case in point: We've spotted 2 warning signs for Seven West Media you should be mindful of and 1 of them is concerning.

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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.
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