The Wendy's Company (NASDAQ:WEN), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$19.87 at one point, and dropping to the lows of US$17.87. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Wendy's' current trading price of US$18.33 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 Wendy's's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is Wendy's Worth?
According to our valuation model, the stock is currently overvalued by about 24%, trading at US$18.33 compared to our intrinsic value of $14.83. This means that the opportunity to buy Wendy's at a good price has disappeared! Another thing to keep in mind is that Wendy's's share price is quite stable relative to 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.
Can we expect growth from Wendy's?
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. 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 a double-digit 17% over the next couple of years, the outlook is positive for Wendy's. 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? WEN's optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe WEN 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 tabs on WEN for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there's no upside from mispricing. However, the positive outlook is encouraging for WEN, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Wendy's.
If you are no longer interested in Wendy's, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.