If EPS Growth Is Important To You, Illinois Tool Works (NYSE:ITW) Presents An Opportunity

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Illinois Tool Works (NYSE:ITW). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Illinois Tool Works

How Quickly Is Illinois Tool Works Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Illinois Tool Works grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It seems Illinois Tool Works is pretty stable, since revenue and EBIT margins are pretty flat year on year. While this doesn't ring alarm bells, it may not meet the expectations of growth-minded investors.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Illinois Tool Works' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Illinois Tool Works Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

First and foremost; there we saw no insiders sell Illinois Tool Works shares in the last year. Even better, though, is that the Independent Director, David H. Smith, bought a whopping US$427k worth of shares, paying about US$240 per share, on average. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

Along with the insider buying, another encouraging sign for Illinois Tool Works is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$255m. While that is a lot of skin in the game, we note this holding only totals to 0.3% of the business, which is a result of the company being so large. This still shows shareholders there is a degree of alignment between management and themselves.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Chris O’Herlihy, is paid less than the median for similar sized companies. For companies with market capitalisations over US$8.0b, like Illinois Tool Works, the median CEO pay is around US$13m.

Illinois Tool Works' CEO took home a total compensation package worth US$6.9m in the year leading up to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does Illinois Tool Works Deserve A Spot On Your Watchlist?

As previously touched on, Illinois Tool Works is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. We don't want to rain on the parade too much, but we did also find 1 warning sign for Illinois Tool Works that you need to be mindful of.

Keen growth investors love to see insider activity. Thankfully, Illinois Tool Works isn't the only one. You can see a a curated list of companies which have exhibited consistent growth accompanied by high insider ownership.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.