In Vino Veritas: We Don't Expect Treasury Wine's Growth Will Live Up to Its Inflated Share Price

Treasury Wine has proved to be one of Australia's great recent turnaround stories, but the market's glass looks more than half full. We credit management for restructuring the winemaker's focus on the rapidly growing premium wine market since CEO Michael Clarke joined in 2014. However, the market has priced the stock at an increasingly high multiple to earnings, and shares now look substantially overvalued. We applaud the company for walking away from low-priced commercial bulk wine production that led to distributor inventory problems, write-offs, and wine destruction in prior years, focusing instead on higher-quality and higher-priced wine, which has improved profitability and returns on invested capital. But we expect earnings to slow and the high earnings multiple to ultimately collapse, and recommend a much lower price before considering long-term investment in Treasury Wine's shares.

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