Is It Too Late To Consider Buying Watsco, Inc. (NYSE:WSO)?

Let's talk about the popular Watsco, Inc. (NYSE:WSO). 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$520 at one point, and dropping to the lows of US$449. 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 Watsco's current trading price of US$449 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 Watsco’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 Watsco

What's The Opportunity In Watsco?

According to our valuation model, the stock is currently overvalued by about 26%, trading at US$449 compared to our intrinsic value of $356.28. This means that the opportunity to buy Watsco at a good price has disappeared! Furthermore, Watsco’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Watsco?

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Watsco's earnings over the next few years are expected to increase by 55%, 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? WSO’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 WSO 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 WSO 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 WSO, 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 Watsco at this point in time. While conducting our analysis, we found that Watsco has 1 warning sign and it would be unwise to ignore it.

If you are no longer interested in Watsco, 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.