Today we’re going to take a look at the well-established Illinois Tool Works Inc. (NYSE:ITW). The company’s stock saw a significant share price rise of 24% in the past couple of months on the NYSE. The company’s trading levels have reached its high for the past year, following the recent bounce in the share price. 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 take a look at Illinois Tool Works’s outlook and value based on the most recent financial data to see if the opportunity still exists.
The share price seems sensible at the moment according to our price multiple model, where we compare the company’s price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Illinois Tool Works’s ratio of 28.35x is trading slightly below its industry peers’ ratio of 29.92x, which means if you buy Illinois Tool Works today, you’d be paying a decent price for it. And if you believe Illinois Tool Works should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Illinois Tool Works’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
View our latest analysis for Illinois Tool Works
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. Illinois Tool Works’ earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
Are you a shareholder? ITW’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 ITW? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?