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Key points
- The Wisetech Global share price is under more selling pressure today
- Shares in the software solutions provider have plunged 26% this YTD
- Wistech is now trading below its consensus price target of $50.17 per share, but above historical and forward earnings multiples
The WiseTech Global Ltd (ASX: WTC) share price is under more selling weight today amid the violent selloff in ASX tech shares that started in December.
Even though it was an impressive year in 2021 for the software-as-a-service (SaaS) player, the momentum hasn't been so rosy in 2022 so far.
Since we rolled into the new year, shares in the software solutions provider have plunged 26% after sliding more than 27% in the past month. They finished the session down another 10% on Thursday and closed at $43.31.
With the recent pullback, it begs the question – is Wistech now trading at a bargain? Let's see what the experts are saying.
What's up with the Wisetech share price lately?
On a wider front, ASX tech shares have been rocked in 2022, amid a sector-wide correction brought on by rising yields on the long end of the US Treasury yield curve.
And when the bond market speaks, the stock market listens – these rising yields disproportionately hurt the valuations of ASX tech shares, resulting in an unwind of investors' exposure to tech and growth in general.
As such, the S&P/ASX All Technology Index (XTX) is down 20% this year to date after falling a further 5% in today's session alone.
Wisetech is front-running the index with its 26% loss since January 1, as shown on the chart below, despite no market-sensitive information from the company in that time.
Why is Wisetech more sensitive to the market moves than some of its peers? One answer lies in what is known as the stock's 'beta', a measurement of the degree an asset moves in relation to movements to the overall market (usually the benchmark S&P/ASX 200 Index (ASX: XJO)).
In essence, high-beta stocks are highly correlated to the market – even more volatile compared to changes in the overall market – whereas low-beta stocks will remain largely muted to market changes.
A beta of zero means the asset's price changes have no correlation to changes in the market, whereas a beta of 1 means the stock moves in lock-step with the market; a perfect correlation. A negative beta shows an inverse relationship in price movements.
Another example is in resources – ASX gold shares have a high beta/correlation to the underlying or spot price of gold, for instance. It is well known that tech shares have a high beta relative to benchmark indices in general.
It is not a measure of risk or volatility itself, but how the stock moves in relation to changes in the market based on historical data.
Bloomberg Intelligence shows Wistech has a calculated beta of 1.134, meaning that for every 1% change (up or down) in the S&P/ASX 200 index over the last 3 years, the company has responded with a 1.134% change in share price in the same direction.
Is the Wisetech share price a bargain right now?
With the recent pullback in share price, Wistech is now trading below its consensus price target of $50.17 per share.
However, sentiment remains mixed, with more than 50% of analysts covering the company advocating it as a hold right now.
Meanwhile, just 30% have it as a buy according to a list provided by Bloomberg Intelligence. Morgan Stanley is one broker constructive on the shares but values the company at $35 per share.
Jarden is also bullish, however sees more upside potential at a $50 per share valuation, in line with the consensus view.
Meanwhile, Macquarie has Wisetech as a hold but values the company at $54 per share in a note from this month, alongside Evans and Partners who see it fairly valued at $45 per share.
Hence, based on a money-weighted basis, the Wistech share price is trading below the consensus estimate of fair value and offers around 16% upside potential at the time of writing.
However, it's important to assess value via additional methods, as the inputs to price targets are notoriously sensitive. That's where earnings multiples come in handy.
Given the consensus of earnings estimates, Wisetech is also trading on a lofty 12 month forward price to earnings (P/E) of 91.5x and expects to report earnings in late February. On last check, it is currently trading at around 144x P/E.
This figure is expected to fall to 69x and 54x P/E based on FY23 and FY24 earnings estimates respectively. Over the last 4 years, Wisetech has also averaged a daily P/E of 107.47x.
Hence, it is currently trading above its historical and forward valuation estimates when factoring in these earnings multiples and thus is not a bargain in that regard.
Alas, judging by the consensus view of Wisetech's fair value, it is is trading at a discount, however compared to its self-statistics on earnings multiples, it is trading at a premium.
Wisetech share price summary
In the last 12 months, the Wisetech share price has climbed more than 27%. However, the selling pressure has crept in and now shareholders are swimming in a sea of red.
Across the past month, shares have tanked 27% and are down more than 17% in the past week of trading as well. Wistech therefore leads the benchmark index's losses for the year.
