Stock Analysis

Is Now An Opportune Moment To Examine WEG S.A. (BVMF:WEGE3)?

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BOVESPA:WEGE3
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Today we're going to take a look at the well-established WEG S.A. (BVMF:WEGE3). The company's stock led the BOVESPA gainers with a relatively large price hike in the past couple of weeks. 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. But what if there is still an opportunity to buy? Let’s examine WEG’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for WEG

Is WEG Still Cheap?

WEG appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that WEG’s ratio of 38.05x is above its peer average of 14.15x, which suggests the stock is trading at a higher price compared to the Electrical industry. In addition to this, it seems like WEG’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 WEG?

earnings-and-revenue-growth
BOVESPA:WEGE3 Earnings and Revenue Growth October 3rd 2022

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. WEG's earnings over the next few years are expected to increase by 64%, 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? It seems like the market has well and truly priced in WEGE3’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe WEGE3 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 tabs on WEGE3 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for WEGE3, which means it’s worth diving deeper into other factors 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 WEG at this point in time. You'd be interested to know, that we found 1 warning sign for WEG and you'll want to know about this.

If you are no longer interested in WEG, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Valuation is complex, but we're helping make it simple.

Find out whether WEG is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About BOVESPA:WEGE3

WEG

WEG S.A. engages in the production and sale of capital goods in Brazil and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth4
Past Performance2
Financial Health6
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with reasonable growth potential.