What Every Investor Must Know About WY Stock

By Ken Smith • Thursday, December 15 15:31 • Permanent Link

Weyerhaeuser Company shares fell by -2.2% during the day's afternoon session, and are now trading at a price of $31.95. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly.

Weyerhaeuser Company, one of the world's largest private owners of timberlands, began operations in 1900. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 2.39. In contrast, Weyerhaeuser Company has a trailing 12 month P/E ratio of 10.4 and a P/B ratio of 2.2.

P/B ratios are calculated by dividing the company's market value by its book value. The book value refers to all of the company's tangible assets minus its liabilities — meaning that intangibles such as intellectual property, brand name, and good will are not taken into account. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.

P/E ratios have their limits on their usefulness too. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio — and there might be good reasons for this negative sentiment.

One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.

Weyerhaeuser Company's PEG ratio is 2.16, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.