Why Emerson Electric Co. (NYSE:EMR) Could Be Worth Watching
Let's talk about the popular Emerson Electric Co. (NYSE:EMR). 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$87.27 at one point, and dropping to the lows of US$78.95. 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 Emerson Electric's current trading price of US$78.95 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 Emerson Electric’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Emerson Electric
What's The Opportunity In Emerson Electric?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10% below my intrinsic value, which means if you buy Emerson Electric today, you’d be paying a fair price for it. And if you believe that the stock is really worth $88.01, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Emerson Electric’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 kind of growth will Emerson Electric generate?
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. However, with a negative profit growth of -10% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Emerson Electric. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? EMR seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on EMR for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on EMR should the price fluctuate below its true value.
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. For example - Emerson Electric has 1 warning sign we think you should be aware of.
If you are no longer interested in Emerson Electric, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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