Stock Valuation: Wipro Ltd (507685)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
WIPRO LTD India/
BOM
Technology – Application Software – Information Technology Services INR284.15
@ 18 Jul 2018
COMPANY PROFILE Wipro Ltd is one of the world’s largest IT services vendors. The company provides services such as business application, technology infrastructure, business process outsourcing, and consulting across over 50 countries.

Established in 1945, Wipro has grown to become one of the world’s largest IT services vendors, providing such services as business application services, infrastructure services, business process outsourcing, and consulting, among others. The firm employs more than 180,000 staff, operates in more than 60 countries, runs approximately 72 global delivery centers, and serves six primary business segments. The company serves more than 1,300 clients (approximately 150 of which are Fortune 500 companies).

Stock Code 507685
Stock Valuation Below

Wipro Price to Cash Flow

Price to Cash Flow is an alternative method to value shares. This is because accounting profits can be subject to manipulation. Therefore, some investors prefer to value a company based on cash flows generated by the operating activities of the company. It also acts as a reality check to valuation measures such as Price to Earnings and Price to Sales. If a company generates high profits and sales but not operating cash flows, it could be heading for trouble because it is cash that pays the operating expenses. However, the Price to Cash Flow ratio of most firms are volatile and should not be used in isolation to determine the valuation of the stock.
At the price of INR284.15 as at 18 Jul 2018, Wipro Ltd is trading at a Price to Cash Flow Ratio of 14.1 times last 12 months cash flow.  This is a 20.0% discount to its historical average Price to Cash Flow Ratio of 17.7 times.
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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