Stock Analysis
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Is Now An Opportune Moment To Examine Xylem Inc. (NYSE:XYL)?
Today we're going to take a look at the well-established Xylem Inc. (NYSE:XYL). The company's stock saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Xylem’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Xylem
Is Xylem still cheap?
Xylem appears to be overvalued by 25% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$128 on the market compared to my intrinsic value of $101.67. This means that the opportunity to buy Xylem at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Xylem’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Xylem look like?
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 86% 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? XYL’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe XYL should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on XYL for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for XYL, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Xylem, and understanding these should be part of your investment process.
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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
Earnings are forecast to grow 22.69% per year
Risks
Profit margins (6%) are lower than last year (8.8%)
Large one-off items impacting financial results
Further research on
Xylem
This article by Simply Wall St is general in nature. 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.
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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 moderate growth potential.
