WNS Holdings (WNS) is a bargain, undervalued with growing earnings

With the S&P 500 near all-time highs, there aren’t many stocks that are true bargains right now, but WNS Holdings (NYSE: WNS) is.

If the India-based business process management company returns to more typical valuation levels, accompanied by the growing earnings that are expected over the next several years, the stock price could more than double by mid-2025.

Cory Mitchell, an analyst with Trading.biz, said, “WNS closed at $49.91 on April 9 with a Price/Earnings (P/E) ratio of 15.3. That is near the lowest P/E level in the last decade.

“Typically when the P/E reaches 20 that is low, so 15.3 is a bargain. P/E values typically move back to 25 to 30 (or higher) after being below 20. With forecasted earnings of $4.57 per share in 2025 the stock could be trading at $114 to $137 at that time.”

The company has also done a good job of growing yearly earnings per share (EPS) over the last decade.

• Analysts project that growth to continue, with EPS increasing an average of 11.3% per year over the next five years.
• Analysts forecast EPS of $4.57 for 2025.
• The company is also buying back shares. The buyback yield is 6.2%. When the stock price is low the company can buy back more shares which bolsters shareholder value because future earnings are split between fewer shareholders.

Recall that P/E values of 25 to 30 are typical for this stock. That indicates a share price of $114.25 to $137.1 (25 and 30 x $4.57) a couple of years down the road. If the company achieves those earnings projections, even a P/E of 20 indicates a price of $91.4. The stock currently trades below $50.

The chart shows the stock price of WNS currently in a downtrend. While the stock has some excellent fundamentals to warrant buying it, the stock has been sliding lower recently despite these conditions already existing. That indicates it could continue dropping or may not be ready to rally just yet.

Consider waiting for selling to slow and the price to start rising before jumping in. This could mean waiting for a rounded bottom pattern inverse head and shoulders breakout to the upside, or some other entry signal such as a moving average crossover. If such a pattern were to play out over the next couple of months, an estimated entry point would be near $55.

Before entry, consider the exit plan whether the stock price rises or falls. Some possible price targets have been provided, but potentially holding a trade for a year or more is a dynamic process. The outlook for the company may change, for better or worse.

Great investors consider this and plan out what to do in either case. If the stock price falls, losses should be kept small. There’s always the option to re-enter if the stock price starts acting better and the fundamentals continue to look good.