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 led the NYSE 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. 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.

See our latest analysis for West Pharmaceutical Services

Is West Pharmaceutical Services still cheap?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 58.68x is above its peer average of 48.96x, which suggests the stock is trading at a higher price compared to the Medical Equipment industry. Furthermore, West Pharmaceutical Services’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 levels around its industry peers, 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 does the future of West Pharmaceutical Services look like?

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NYSE:WST Earnings and Revenue Growth August 2nd 2021

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. With profit expected to grow by 23% 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 an eye on WST for a while, 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.

So while earnings quality is important, it's equally important to consider the risks facing West Pharmaceutical Services at this point in time. You'd be interested to know, that we found 1 warning sign for West Pharmaceutical Services and you'll want to know about it.

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