Stock Analysis

Watsco (WSO): Evaluating Valuation After Recent Share Price Retreat

Watsco (WSO) shares have seen some movement recently, drawing attention from investors curious about the valuation. With the stock giving up ground over the past month, there are questions about what might be next for this HVAC distributor.

See our latest analysis for Watsco.

Watsco’s share price has struggled lately, with a 1-month share price return of -4.3% and a year-to-date move of -20.9%. This reflects softer sentiment after a strong run in recent years. Still, the company’s five-year total shareholder return is an impressive 81%, showing its longer-term growth story remains firmly intact even as recent momentum has faded.

If you’re weighing what other opportunities are out there, this could be an opportune moment to broaden your investing radar and discover fast growing stocks with high insider ownership

The question now for investors is whether Watsco’s current share price reflects an undervalued opportunity or if the company’s future growth is already fully factored in, making a new entry less appealing.

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Most Popular Narrative: 16.7% Undervalued

Watsco's most widely tracked valuation narrative puts fair value at $445, which is notably above the last close at $370.8. With the market currently pricing in less, the contrast between analyst assumptions and the latest share price drives the current debate.

The company’s core HVAC replacement business saw a 10% sales increase from higher volumes and a richer mix of high-efficiency systems. This trend could continue to drive revenue growth and potentially improve gross margins as more of this product mix transitions to broader market adoption.

Read the complete narrative.

Curious what numbers could back up an almost double-digit discount to fair value? This narrative leans on rising efficiency, margin gains, and bold future profit assumptions. If you want to discover exactly which forecasts analysts are banking on, keep reading to get the hidden details behind this bullish outlook.

Result: Fair Value of $445 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, delays in the A2L transition or new tariff impacts could pressure margins and disrupt sales momentum. This could cast some uncertainty on the bullish outlook.

Find out about the key risks to this Watsco narrative.

Another View: Current Market Multiple Tells a Different Story

While the fair value narrative suggests Watsco is undervalued, looking at the price-to-earnings ratio offers a more cautious perspective. Watsco trades at 28.4 times earnings, which is higher than the US Trade Distributors industry’s 21x average and the peer average of 17.6x. The fair ratio for Watsco is estimated at 25.6x, so the current price could be running ahead of what the market might eventually justify. This raises a practical question: is recent pessimism enough, or could there be further downside risk if the market focuses on these multiples?

See what the numbers say about this price — find out in our valuation breakdown.

NYSE:WSO PE Ratio as at Oct 2025
NYSE:WSO PE Ratio as at Oct 2025

Build Your Own Watsco Narrative

If you have your own perspective or want to dig into the numbers firsthand, you can build your own scenario in just a few minutes. Do it your way

A great starting point for your Watsco research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

Looking for More Investment Ideas?

There’s a world of opportunity beyond Watsco. Don’t let smart picks slip by. Power up your portfolio with these compelling themes waiting for your attention:

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.

Valuation is complex, but we're here to simplify it.

Discover if Watsco might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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About NYSE:WSO

Watsco

Engages in the distribution of air conditioning, heating, and refrigeration equipment, and related parts and supplies in the United States, Canada, Latin America, and the Caribbean.

Flawless balance sheet with proven track record and pays a dividend.

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