Should You Be Adding Illinois Tool Works (NYSE:ITW) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Illinois Tool Works (NYSE:ITW), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Illinois Tool Works

Illinois Tool Works' Earnings Per Share Are Growing

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Over the last three years, Illinois Tool Works has grown EPS by 16% per year. That's a good rate of growth, if it can be sustained.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Illinois Tool Works maintained stable EBIT margins over the last year, all while growing revenue 2.9% to US$16b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Illinois Tool Works' future profits.

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. But the really good news is that Independent Director David H. Smith spent US$242k buying stock, at an average price of around US$242. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

On top of the insider buying, it's good to see that Illinois Tool Works insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$231m. 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.

Does Illinois Tool Works Deserve A Spot On Your Watchlist?

One positive for Illinois Tool Works is that it is growing EPS. That's nice to see. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. It is worth noting though that we have found 1 warning sign for Illinois Tool Works that you need to take into consideration.

Keen growth investors love to see insider buying. 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 recent insider buying.

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.