SBGSF - WEG Q1 2024: Weak Results To Justify Valuation

2024-05-08 05:36:13 ET

Summary

• WEG reported weak results. Its revenue grew just 5% for the year, although margins were offset by good expense control.
• The company has a P/E multiple of 28.9x, and trades at a 12% premium to competitors. Therefore, there is little margin of safety to recommend buying the shares.
• Additionally, the valuation of 28.9x earnings does not seem to justify annual growth of 5%, and a sector with discouraging prospects.

Investment Thesis

I recommend holding WEG ( OTCPK:WEGZY ) shares after the 1Q24 results, released on May 2nd. As I mentioned in my coverage initiation report , the company has a stretched valuation and needs great results to justify it.

On the positive side, the good performance of long-cycle businesses, together with expense control, helped keep the EBITDA margin high, reaching 22%. This expense control once again shows how efficient WEG managers are....

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