Illinois Tool Works Inc. (NYSE:ITW) saw significant share price movement during recent months on the NYSE, rising to highs of US$247 and falling to the lows of US$196. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Illinois Tool Works' current trading price of US$196 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Illinois Tool Works’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Illinois Tool Works?
According to my valuation model, Illinois Tool Works seems to be fairly priced at around 16% below my intrinsic value, which means if you buy Illinois Tool Works today, you’d be paying a reasonable price for it. And if you believe the company’s true value is $233.28, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Illinois Tool Works’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
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. With profit expected to grow by 20% over the next couple of years, the future seems bright for Illinois Tool Works. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in ITW’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
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 its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about Illinois Tool Works as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Illinois Tool Works and you'll want to know about them.
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.
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.