Today we’re going to take a look at the well-established Eaton Corporation plc (NYSE:ETN). The company’s stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$378 at one point, and dropping to the lows of US$331. 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 Eaton’s current trading price of US$343 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 Eaton’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 Eaton
Eaton appears to be overvalued by 36% at the moment, based on our discounted cash flow valuation. The stock is currently priced at US$343 on the market compared to our intrinsic value of $251.28. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Since Eaton’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.
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. With profit expected to grow by 41% over the next couple of years, the future seems bright for Eaton. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
Are you a shareholder? ETN’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ETN 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 tabs on ETN for some time, 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 optimistic prospect is encouraging for ETN, which means it’s worth diving deeper into other factors 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 Eaton at this point in time. At Simply Wall St, we found 1 warning sign for Eaton and we think they deserve your attention.
If you are no longer interested in Eaton, 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.