Stock Analysis

What Does West Pharmaceutical Services, Inc.'s (NYSE:WST) Share Price Indicate?

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NYSE:WST
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Today we're going to take a look at the well-established West Pharmaceutical Services, Inc. (NYSE:WST). The company's stock saw a decent share price growth in the teens level on the NYSE over the last few months. 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. However, could the stock still be trading at a relatively cheap price? Let’s take a look at West Pharmaceutical Services’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for West Pharmaceutical Services

Is West Pharmaceutical Services still cheap?

West Pharmaceutical Services is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to 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 West Pharmaceutical Services’s ratio of 62.18x is above its peer average of 50.05x, which suggests the stock is trading at a higher price compared to the Medical Equipment industry. Another thing to keep in mind is that West Pharmaceutical Services’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of West Pharmaceutical Services look like?

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NYSE:WST Earnings and Revenue Growth April 7th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 51% over the next couple of years, the future seems bright for West Pharmaceutical Services. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in WST’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe WST 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 WST 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 positive outlook is encouraging for WST, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

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