When Should You Buy 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 double-digit share price rise of over 10% in the past couple of months on the NYSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Xylem’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Xylem

What Is Xylem Worth?

Xylem appears to be overvalued by 20% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$108 on the market compared to my intrinsic value of $90.27. This means that the opportunity to buy Xylem at a good price has disappeared! 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?

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. Xylem's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in XYL’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to 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.

If you'd like to know more about Xylem 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 Xylem and you'll want to know about them.

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.