Stock Analysis
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At US$88.07, Is It Time To Put Xylem Inc. (NYSE:XYL) On Your Watch List?
Let's talk about the popular Xylem Inc. (NYSE:XYL). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$124 at one point, and dropping to the lows of US$82.37. 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 Xylem's current trading price of US$88.07 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 Xylem’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Xylem
What's the opportunity in Xylem?
According to my valuation model, Xylem seems to be fairly priced at around 7.7% below my intrinsic value, which means if you buy Xylem today, you’d be paying a reasonable price for it. And if you believe the company’s true value is $95.43, 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 Xylem’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 does the future of Xylem look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 56% over the next couple of years, the future seems bright for Xylem. 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 XYL’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 financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on XYL, now may not be the most optimal 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 diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for Xylem and we think they deserve your attention.
If you are no longer interested in Xylem, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
What are the risks and opportunities for Xylem?
Xylem Inc., together with its subsidiaries, engages in the design, manufacture, and servicing of engineered products and solutions for the water and wastewater applications in the United States, Europe, the Asia Pacific, and internationally.
Rewards
Trading at 19.9% below our estimate of its fair value
Earnings are forecast to grow 25.13% per year
Risks
Shareholders have been diluted in the past year
Large one-off items impacting financial results
Further research on
Xylem
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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.
About NYSE:XYL
Xylem
Xylem Inc., together with its subsidiaries, engages in the design, manufacture, and servicing of engineered products and solutions for the water and wastewater applications in the United States, Europe, the Asia Pacific, and internationally.
Excellent balance sheet with reasonable growth potential and pays a dividend.
