Is Now the Time to Buy WPP?
LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now, I am trawling through the FTSE 100, and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today, I am looking at WPP to determine whether you should consider buying the shares at 1,000 pence.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
3-yr EPS growth
3-yr dividend growth
The consensus analyst estimate for this year's earnings per share is 72.6 pence (7.2 % growth) and dividend per share is 27.6 pence (33% growth).
Trading on a projected P/E of 14, WPP appears cheaper than its peers in the media sector, which are currently trading on an average P/E of around 18. WPP's P/E and high single-digit growth rate give a PEG ratio of around 1.9, which implies the share price is slightly expensive for the near-term earnings growth the firm is expected to produce.
WPP offers a 2.6% yield, which is below the media sector average of 2.9%. However, WPP has a three-year compounded dividend growth rate of 33%, implying the yield could soon begin to exceed that of its peers.
Indeed, the dividend is more than three times covered, giving WPP plenty room for further payout growth.
WPP is relatively cheap, but is growth set to continue?
WPP is a holding company for 328 different media, advertising, and public relations companies located all over the world. Including associates, the company has more than 3,000 offices worldwide, with exposure in almost every country.
As I say, WPP looks relatively cheap compared to its peers, and I believe the company's rapid expansion during the past three years is set to continue.
Indeed, WPP continues to grow its global exposure with acquisitions around the world, the most recent of which was the Salmon group, a specialist in e-commerce.
Unfortunately, despite the firm's historic growth, I believe there are some significant issues that could affect the company going forward. In particular, WPP's increasing level of debt that has been funding the company's rapid expansion.
WPP's net debt for the past nine months amounted to £3.6 billion, representing a gearing level of roughly 30%, which is not alarmingly high. However, WPP's interest payments are covered only three times by gross profit, which doesn't give the group much room to maneuver should it suffer a setback.
In addition, WPP faces headwinds from negative currency movements, which, for the third quarter of 2012, held back the group's revenue by 3.2%.
Nonetheless, despite these negative factors, WPP is still forecast to produce strong near-term growth, and is currently cheaper than its peers. So, albeit with one eye on those debts, I believe that now looks to be a good time to buy WPP at 1,000 pence.
More FTSE opportunities
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
The article Is Now the Time to Buy WPP? originally appeared on Fool.com.Rupert does not own any share mentioned in this article.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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