The WiseTech Global Ltd (ASX: WTC) share price was a solid performer on Tuesday, rising 1.5% to $15.42.
This latest gain means the logistics software company’s shares have now provided investors with a stunning return of 120% since this time last year.
But one leading broker appears to believe that these gains could be coming to an end now, possibly making it a time to consider taking a bit of profit off the table.
According to a note out of investment bank Citi, its analysts have downgraded WiseTech Global’s shares to a neutral rating from buy. The broker has, however, lifted its price target from $14.12 up to $16.12.
Citi has made the move on valuation grounds and it isn’t hard to see why.
Based on the broker’s forecasts for earnings per share of 13.6 cents in FY 2018 and 19.9 cents in FY 2019, the company’s shares are changing hands at a significant premium to the rest of the market.
Citi’s estimate for FY 2019, which is around a cent higher than the consensus estimate, means its shares are priced at over 77x forward earnings.
While I have no doubt that the company is capable of growing its earnings at a strong rate over the coming years thanks to the growing popularity of its software and the countless bolt on acquisitions it has made, its shares are priced to perfection now.
And as we have seen with a number of high PE shares this year such as A2 Milk Company Ltd (ASX: A2M), Domino’s Pizza Enterprises Ltd (ASX: DMP) and Kogan.com Ltd (ASX: KGN), failure to live up the high expectations of the market can lead to sharp share price declines.
In light of this, I would agree with Citi that WiseTech Global is a hold at these levels and feel taking a little profit off the table wouldn’t be a bad idea. Especially given the risks involved with integrating all its acquisitions successfully.
Finally, I would consider reinvesting the proceeds in one of these buy-rated shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and WiseTech Global. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited and Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.