Exploring Winmark (WINA) Valuation: Is Its High P/E Ratio Justified for Investors?

Winmark (WINA) has seen shares trade mostly sideways this month, trailing the broader market’s momentum. Investors seem keen to revisit its underlying business, as recent performance trends prompt a closer look at its valuation and growth trajectory.

See our latest analysis for Winmark.

Over the past year, Winmark’s share price momentum has hit a bit of a lull, even as the company posts consistent growth in both revenue and profits. With a 1-year total shareholder return of just over 5%, short-term gains remain modest. However, the impressive 3- and 5-year total returns of nearly 85% and 161% respectively show what’s possible for patient investors.

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But with the shares lingering below analyst price targets, the real question is whether Winmark is currently undervalued and offers an entry point, or if the market is already factoring in all of its future growth potential.

Price-to-Earnings of 35.1x: Is it justified?

Winmark is currently trading at a Price-to-Earnings (P/E) ratio of 35.1x, compared to a peer average of 48.4x. At its last close of $406.64, the market is assigning a substantial premium to the company, though not as high as some of its closest comparables.

The P/E ratio measures how much investors are willing to pay per dollar of earnings and is a key benchmark for evaluating profitability and market expectations for specialty retail companies like Winmark. In this case, the relatively high P/E means investors expect continued profitability as well as future growth, but it is not the sector’s most aggressive valuation.

Interestingly, compared to the broader US Specialty Retail industry average of 16.6x, Winmark’s P/E appears highly elevated. In addition, our fair value estimate for the multiple stands at just 13x. This gap suggests that the market is pricing in a significant degree of optimism that could moderate if growth disappoints or industry multiples reset lower.

Explore the SWS fair ratio for Winmark

Result: Price-to-Earnings of 35.1x (OVERVALUED)

However, softer revenue growth or a reset in industry valuation multiples could put pressure on Winmark’s share price in the coming quarters.

Find out about the key risks to this Winmark narrative.

Another View: The SWS DCF Model

Taking a different approach, the SWS DCF model puts Winmark’s fair value closer to $309.43 per share, significantly below today’s market price. Unlike a multiples-based method, the DCF analyzes future cash flows to estimate intrinsic value. Does this mean the market’s optimism is overdone, or is it too cautious?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Winmark for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 923 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Winmark Narrative

If you see things differently or want to dig into Winmark’s numbers firsthand, you can build your own story in just a few minutes and Do it your way.

A great starting point for your Winmark research is our analysis highlighting 2 key rewards and 4 important warning signs that could impact your investment decision.

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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.

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