Should You Buy Treasury Wine Estates Ltd at This Share Price?

What happened to the TWE share price?

Treasury Wine Estates Ltd [ASX:TWE] was up marginally today, with the broader Aussie market trading slightly lower. TWE has been one of the most successful growth and momentum stocks in the ASX100 universe over the last 26 weeks.

Why did TWE shares do this?

Treasury Wine Estates Ltd has seen its value expand as a result of growing bottom and top-lines. The market currently forecasts another two years of positive growth for the company in 2016 and 2017. The market also believes the long term growth rate for the company’s earnings will be at double digits.

The company’s success needs to be put into perspective when it comes down to assessing equity value. TWE is very expensive in terms of P/E multiples, at 67 times. The company has a low beta, reflecting low-correlation with the broad market. The company pays a dividend; it doesn’t have a lot of debt, and is liquid.

In essence, TWE is not a cheap stock. It has had a great run, but the probability of it reaching a critical reversal level is much higher than before.

What now for TWE?

In my coverage of the ASX100 universe, TWE has been one of the top stocks to have a position in over the last few months. In my trading model for the ASX100, TWE continues to be a momentum stock that investors should have a position in.

My main worry on the stock is its valuation. Market analysts have given it an average HOLD rating, which reflects what experts think about the current valuation of TWE. I won’t hesitate to also remind investors that all momentum decays over time. When will we see such a thing happen to TWE? I am not completely certain, but I am certain that it will happen at some point. This means investors of TWE need to be on their toes.

Overall, investors can still have a long position in TWE but they need to be watching the price evolution very carefully going forward.

Ken Wangdong

Emerging Market Analyst, New Frontier Investor

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