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Does Illinois Tool Works (NYSE:ITW) Deserve A Spot On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Illinois Tool Works (NYSE:ITW). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Illinois Tool Works

How Quickly Is Illinois Tool Works Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Illinois Tool Works managed to grow EPS by 9.5% per year, over three years. That's a good rate of growth, if it can be sustained.

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It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Illinois Tool Works achieved similar EBIT margins to last year, revenue grew by a solid 7.8% to US$16b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
earnings-and-revenue-history

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Illinois Tool Works' future EPS 100% free.

Are Illinois Tool Works Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

First things first, there weren't any reports of insiders selling shares in Illinois Tool Works in the last 12 months. But the really good news is that Independent Director David H. Smith spent US$308k buying stock, at an average price of around US$222. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

On top of the insider buying, it's good to see that Illinois Tool Works insiders have a valuable investment in the business. We note that their impressive stake in the company is worth US$207m. We note that this amounts to 0.3% of the company, which may be small owing to the sheer size of Illinois Tool Works but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.

Should You Add Illinois Tool Works To Your Watchlist?

One positive for Illinois Tool Works is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Illinois Tool Works , and understanding this should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Illinois Tool Works, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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