• If you are wondering whether ITT at around US$205 per share represents fair value, a premium price, or a potential entry point, this article walks through what the numbers say about the stock.
• The share price has eased recently, with the stock down 3.3% over the past week and 5.2% over the past month, while the year to date return is 18.1% and the 1 year return is 37.9%.
• Over a longer stretch, ITT has posted a 3 year return of 161.7% and a 5 year return of 130.5%. This frames the recent pullback against a strong multi year move and provides useful context when you consider whether current pricing reflects past momentum, shifting risk perceptions, or changes in the fundamentals.
• Even with that track record, ITT currently scores just 1 out of 6 on our valuation checks. Next up is a closer look at how different valuation approaches compare for this stock and why a more holistic method at the end of the article may change how you interpret that score.

ITT scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: ITT Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts those projections back to today’s dollars. The idea is simple: you estimate what cash the business could produce for shareholders and ask what that stream is worth right now.

For ITT, the latest twelve month Free Cash Flow is about $463.0m. Analysts have provided explicit forecasts out to 2029, and Simply Wall St extrapolates beyond that to build a longer term picture. Within those projections, annual Free Cash Flow is modeled to reach between roughly $556.3m and $1,705.4m over the coming decade, with the 2029 figure at $1,039.6m. All of these cash flows are forecast and then discounted back using a 2 Stage Free Cash Flow to Equity model.

On this basis, the estimated intrinsic value from the DCF comes out at about $231.10 per share. Compared with a current share price around $205, the model points to ITT trading at roughly an 11.0% discount, which indicates that the stock screens as undervalued on this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests ITT is undervalued by 11.0%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.

Approach 2: ITT Price vs Earnings

For a profitable company like ITT, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. A higher or lower P/E often reflects what the market expects for future growth and how much risk investors see in the business, so a “fair” P/E is rarely one fixed number.

ITT currently trades on a P/E of 40.18x. That sits above the Machinery industry average of 27.14x and above the peer group average of 34.73x, which suggests investors are currently paying more per dollar of earnings than for many similar stocks.

Simply Wall St also calculates a proprietary “Fair Ratio” for ITT of 30.77x. This is an estimate of what the P/E might be given factors such as the company’s earnings growth profile, its industry, profit margins, market cap and specific risks. Because it is tailored to the company, this Fair Ratio can be more informative than a simple comparison with industry or peer averages.

Comparing ITT’s current P/E of 40.18x to the Fair Ratio of 30.77x indicates the stock is trading above that fair range on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your ITT Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives tie your view of ITT’s business, such as its exposure to energy transition projects or reliance on long cycle pump orders, to a clear set of revenue, earnings and margin estimates. They convert that into a Fair Value, and then let you compare that Fair Value with today’s price inside Simply Wall St’s Community page, where different investors might, for example, lean toward a higher Fair Value closer to US$255.00 or a lower one around US$157.58, and see those views update automatically as new earnings, news or guidance arrive.

For ITT however we will make it really easy for you with previews of two leading ITT Narratives:

Fair value: US$235.58

Implied discount to this narrative fair value vs last close: about 12.7% undervalued

Analyst revenue growth assumption: 16.20% a year

• Analysts see ongoing demand across energy, water and industrial customers, supported by a large backlog and expansion in higher margin aftermarket and services.
• Acquisitions such as Svanehøj, kSARIA and Habonim are expected to add revenue and margin over time if integration continues to run smoothly.
• The bullish view rests on earnings rising through a mix of volume growth, margin improvement and cash flow that supports the current analyst fair value.

Fair value: US$157.58

Implied premium to this narrative fair value vs last close: about 30.6% overvalued

Analyst revenue growth assumption: 7.02% a year

• Bears focus on the concentration in long cycle pump projects and a near US$2b backlog that could be rescheduled or resized if customer capex plans shift.
• This view assumes slower revenue growth, a lower future P/E multiple and a fair value that sits closer to the more cautious analyst targets.
• To agree with this narrative, you would need to think earnings, margins and the valuation multiple all settle nearer the low end of analyst expectations.

Whichever camp you lean toward, the key is to be clear about which assumptions on growth, margins and valuation you find most reasonable and then see how they line up with your own risk tolerance and time horizon.

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for ITT on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do you think there's more to the story for ITT? Head over to our Community to see what others are saying!

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.