When Should You Buy Ecolab Inc. (NYSE:ECL)?

By
Simply Wall St
Published
April 15, 2022
NYSE:ECL
Source: Shutterstock

Ecolab Inc. (NYSE:ECL) 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 Ecolab’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Ecolab

What's the opportunity in Ecolab?

According to my valuation model, Ecolab seems to be fairly priced at around 5.8% below my intrinsic value, which means if you buy Ecolab today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $187.41, then there isn’t much room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Ecolab’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 Ecolab look like?

earnings-and-revenue-growth
NYSE:ECL Earnings and Revenue Growth April 15th 2022

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. Ecolab's earnings over the next few years are expected to increase by 85%, 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? It seems like the market has already priced in ECL’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 ECL, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook 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.

So while earnings quality is important, it's equally important to consider the risks facing Ecolab at this point in time. For example - Ecolab has 2 warning signs we think you should be aware of.

If you are no longer interested in Ecolab, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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