Is It Time To Consider Buying Eaton Corporation plc (NYSE:ETN)?

Eaton Corporation plc (NYSE:ETN) led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Eaton’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Eaton

What's The Opportunity In Eaton?

According to my valuation model, the stock is currently overvalued by about 31%, trading at US$215 compared to my intrinsic value of $163.52. This means that the opportunity to buy Eaton at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that Eaton’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Eaton look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Eaton's earnings over the next few years are expected to increase by 48%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in ETN’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ETN should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ETN for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for ETN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Eaton.

If you are no longer interested in Eaton, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.