At US$252, Is Illinois Tool Works Inc. (NYSE:ITW) Worth Looking At Closely?

Today we're going to take a look at the well-established Illinois Tool Works Inc. (NYSE:ITW). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. 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. But what if there is still an opportunity to buy? Let’s examine Illinois Tool Works’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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Is Illinois Tool Works Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 21.92x is currently trading slightly below its industry peers’ ratio of 24.08x, which means if you buy Illinois Tool Works today, you’d be paying a decent price for it. And if you believe that Illinois Tool Works should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Illinois Tool Works’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

View our latest analysis for Illinois Tool Works

What kind of growth will Illinois Tool Works generate?

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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 3.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Illinois Tool Works, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has already priced in ITW’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ITW? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on ITW, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Illinois Tool Works at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Illinois Tool Works.

If you are no longer interested in Illinois Tool Works, 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.