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Treasury Wine Estates Limited (ASX:TWE), a beverage company based in Australia, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$19.63 and falling to the lows of A$16.27. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Treasury Wine Estates’s current trading price of A$16.27 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Treasury Wine Estates’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Treasury Wine Estates
Is Treasury Wine Estates still cheap?
Treasury Wine Estates appears to be overvalued by 69% at the moment, based on my discounted cash flow valuation. The stock is currently priced at AU$16.27 on the market compared to my intrinsic value of A$9.6. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that Treasury Wine Estates’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 its intrinsic value 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 to fall back down into an attractive buying range again.
What kind of growth will Treasury Wine Estates generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 92.47% over the next couple of years, the future seems bright for Treasury Wine Estates. It looks like higher cash flows 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 TWE’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe TWE 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.