The WiseTech Global Limited (ASX: WTC) share price is down 3.3% over the last month, and there’s no shortage of analysts saying $22 is still too high.
WiseTech Global was founded in 1994 by Richard White to provide software for the logistics sector. Since then it has grown to become a global provider of logistics software, claiming to service 19 of the top 20 logistics companies globally.
WiseTech makes money by charging its customers on a ‘per use’ basis rather than as a standard subscription model. Meaning, WiseTech directly benefits as its customers grow their businesses.
$21 Price Target?
There are numerous indicators that analysts think WiseTech shares could be overvalued.
First, looking at aggregate sites like The Wall Street Journal or Strawman, the average price targets for WiseTech are $21.23 and $20.59, respectively (it’s important to note that not all of these price targets are from professional analysts and you should never rely on someone else’s valuation).
ASIC’s short report also gives an indication of the number of investors betting against WiseTech shares. The most recent data shows that as of 30th April 2019, there were 6,133,426 reported short positions or about 1.89% of all WiseTech shares. Over the last month, the percentage of WiseTech shares being shorted has hovered around 2%.
While this isn’t a huge percentage — there are more short sellers focussing on Westpac Banking Corp (ASX: WBC) — it does indicate some negative sentiment towards WiseTech shares.
Valuation Ratios Are Sky High
WiseTech shares trade at very high price/earnings and price/sales ratios.
Higher ratio valuations can be expected for growth shares, but the multiples are far higher than other growth shares like Altium Ltd (ASX: ALU) and Appen Ltd (ASX: APX). Altium and Appen trade at lower P/E ratios and P/S ratios while generating much higher returns on equity and capital. Though these businesses operate in other industries to WiseTech, I think it shows that WiseTech shares are being treated differently to other growth shares.
Share Purchase Plan
I recently wrote an article explaining that WiseTech’s share purchase plan was an indication that management thought the shares were either overvalued or fairly valued, which was one of the reasons I sold my shares. This Rask Media article explains the SPP further.
With the short reports, high ratios and management actions, I believe a valuation of around $21 is likely the fair value of WiseTech shares. While it’s a promising company, I wouldn’t be buying shares at the current price.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.