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Why West Pharmaceutical Services, Inc. (NYSE:WST) Could Be Worth Watching

Simply Wall St

Let's talk about the popular West Pharmaceutical Services, Inc. ( NYSE:WST ). The company's shares 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? Today I will analyse the most recent data on West Pharmaceutical Services’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for West Pharmaceutical Services

What is West Pharmaceutical Services worth?

West Pharmaceutical Services is currently overpriced based on my relative valuation model. 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 46.01x is above its peer average of 40.83x, which suggests the stock is overvalued compared to the Medical Equipment industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since West Pharmaceutical Services’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of West Pharmaceutical Services look like?

NYSE:WST Past and Future Earnings, August 13th 2019

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. West Pharmaceutical Services’s earnings over the next few years are expected to increase by 29%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? WST’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe WST 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 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.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on West Pharmaceutical Services. You can find everything you need to know about West Pharmaceutical Services in the latest infographic research report . If you are no longer interested in West Pharmaceutical Services, you can use our free platform to see my list of over 50 other stocks with a high growth potential .

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.