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Has Treasury Wine matured enough?

Just like there comes a time to open a bottle of good wine, there comes a time to sell a good stock. The time to look at taking profits on Treasury Wine Estate (ASX: TWE) may soon be approaching – particularly if its price appreciates soon for no better reason than a falling Australian dollar.

Eighty percent of Treasury’s sales volume is in Australia, but 43% of its income is from the United States, so it stands to benefit from our falling currency. It has been more of a capital growth play than a yield stock. Its price is up 24% on the year to date, but its dividend yield is a low 2.2% on a price earnings ratio of 29%, double the average of its food and beverage industry sector.

A market outperforming 3.43% gain on Wednesday pushed it back over the $6 mark. That made it look like long-term holders should start keeping an eye on whether it could return to its 52-week high of $6.47 on May 20. But the closer it gets to that point the less of a “hold” it looks.

Other recent price spikes were $6.18 on March 20 when it had been hovering around $5 just a month earlier; and $5.60 on October 19 last year when it had traded as low as $4.27 mid-August. So there is some volatility there and anything looking like another spike would have to get investors thinking. Some believe the price has a fairly healthy prospective takeover premium in it.

Morningside reckons Treasury is trading about 60% above an intrinsic value of $3.70. Following a previous 8.2% growth in earnings, its consensus forecast for current year earnings for Treasury is a flatline 0%, leading it to join other analysts in recommending a “sell” on the stock.

Foolish takeaway

It might not be quite the time to sell Treasury Wine Estate — maybe our lower currency can see its value mature that little bit closer to the high $6.40s again; but investors hoping to reap some rewards should not leave it so long that it goes off. The further it rises above $6 the more they should think about taking some profits off the table.

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Motley Fool contributor Andrew Ballard does not own shares in any company mentioned. 

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