Is the WiseTech share price currently overvalued?
'In the stock market, valuation doesn’t matter — until it finally does.'
WiseTech – the now $6.81 billion tech-focused logistics company – recorded an intraday low of $18.07 per share today.
Two days prior, WiseTech traded close to the $30 per share mark – which, at the time may have led many to believe that the company had finally shrugged off the brutal short attack launched against it in late-2019.
This time though it was not a rogue hedge fund that caused WiseTech’s stock to crumble: but likely a set of interim results – as well as a weaker outlook – that did not meet the market’s lofty expectations.
Looking at the price action and today’s intraday low: the WiseTech (ASX: WTC) share price was down as much as 37% – in the span of just two days!
From the company’s 2019-September peak, the picture is even worse: the stock has essentially halved since then.
Yet even after this precipitous decline, WiseTech remains expensive, by historical standards at least – still trading at more than 100x FY19 earnings. Equities have on average, traded around 15x earnings.
As MarketWatch columnist Jeff Reeves astutely points out, 'In the stock market, valuation doesn’t matter — until it finally does.'
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Interim results in focus
Centrally, WiseTech’s half-yearly results were good by most standards: revenue was up 31%, the company plans to pay an Interim Dividend 13% higher than it did last year, and net profits rose an astounding 160% – to $59.9 million.
The market however, was not impressed.
For one, as Macquarie analysts pointed out in regard to those impressive bottom-line figures: WiseTech's ‘statutory NPAT was boosted by a $32.7m reversal of contingent liability in relation to earnout payments primarily related to six acquisitions not performing as expected.'
Moreover, for as good as those interim results may have been, a full-year downgrade is typically never well received by investors, especially for stocks trading at high multiples.
WiseTech now expects FY20 revenue in the range of $420 million to $450 million – implying a growth rate of between 21% to 29%. Previous revenue growth estimates were set at between 26% to 32%.
The bottom-line outlook came out even weaker, with earnings (EBITDA) pegged to come in at between $114 million to $132 million, implying a growth rate of 4% to 22%. The company had previously guided for FY20 'EBITDA growth of 34% - 42%.'
Not only that, but attached to that EBITDA estimate was the following footnote: 'The application of AASB 16 Leases brought into effect from 1 July 2019, is expected to add $6m to EBITDA for FY20, with no change to revenue. The total is reflected in the guidance provided.'
According to management, this FY20 downgrade was driven by the US-China trade war and the 'unexpected outbreak of the coronavirus [...] and the effective shutdown of China.'
'While we have a diversified array of revenue drivers,' the company's CEO Richard White noted, 'we do anticipate that the manufacturing slowdown will delay execution of logistics activities by logistics service providers.'
And to be fair, no one could have predicted the emergence of the Coronavirus; nor even in the current time-frame, its true and eventual economic, social and health impact.
Is the WiseTech share price currently over or undervalued?
In light of the recent sell-down, it’s worth questioning whether WiseTech’s stock is over or undervalued, at its current price.
According to Bloomberg Data, the average 12-month price target on WiseTech Global (ASX: WTC) stands at $21.42 per share – potentially suggesting that the stock may be undervalued at current price levels.
Should analysts be proven correct, at WiseTech’s closing price of $18.9 (20 February) – investors could be looking at upside potential of ~13%.
Taking a more granular approach and surveying how analysts have changed their view in the wake of WiseTech’s interim results, we see that Morgan Stanley has a current price target of $29 on the stock, Macquarie $23, Morningstar $8.10, Bell Potter $20 and Evans & Partners $24.52.
Stuart Turner, one of the most bullish analysts on WiseTech, has yet to update his rating and price target on the stock. Mr Turned previously had a 12-month price target of $35.40 on WiseTech.
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