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Let's talk about the popular Illinois Tool Works Inc. (NYSE:ITW). 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$218 at one point, and dropping to the lows of US$194. 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 Illinois Tool Works' current trading price of US$203 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 Illinois Tool Works’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Illinois Tool Works still cheap?
According to my valuation model, Illinois Tool Works seems to be fairly priced at around 9.74% above my intrinsic value, which means if you buy Illinois Tool Works today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $185.26, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Illinois Tool Works’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Illinois Tool Works 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 38% over the next couple of years, the future seems bright for Illinois Tool Works. 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 ITW’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 tabs on ITW, now may not be the most advantageous 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. While conducting our analysis, we found that Illinois Tool Works has 1 warning sign and it would be unwise to ignore it.
If you are no longer interested in Illinois Tool Works, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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