Is Now The Time To Look At Buying Xylem Inc. (NYSE:XYL)?

Xylem Inc. (NYSE:XYL) saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. The recent jump in the share price has meant that the company is trading around its 52-week high. 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. However, what if the stock is still a bargain? Let’s examine Xylem’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Xylem

Is Xylem Still Cheap?

According to our valuation model, the stock is currently overvalued by about 22%, trading at US$145 compared to our intrinsic value of $118.79. This means that the buying opportunity has probably disappeared for now. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Xylem’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

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. Xylem's earnings over the next few years are expected to increase by 74%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

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 tabs on XYL for some time, 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 optimistic prospect is encouraging for XYL, which means it’s worth diving deeper into other factors 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. Every company has risks, and we've spotted 3 warning signs for Xylem you should know about.

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.

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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.