When Should You Buy Watsco, Inc. (NYSE:WSO)?

Let's talk about the popular Watsco, Inc. (NYSE:WSO). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Watsco’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Watsco

Is Watsco Still Cheap?

Watsco appears to be overvalued by 25% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$331 on the market compared to my intrinsic value of $264.57. 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.

What kind of growth will Watsco 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. 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. However, with a relatively muted profit growth of 1.2% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Watsco, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in WSO’s future outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to 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 means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Watsco has 2 warning signs we think you should be aware of.

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.