The answer to the question in the headline is $7,000. While I appreciate that this is not the usual figure readers might expect from such an article, it's not meant as a criticism. In fact, there's a case for buying 3M (MMM -2.01%) on a valuation basis, but it requires management to get the company back on the right track.

Of course, that's easier said than done, but if the example of its industrial peer Illinois Tool Works (ITW -1.62%) is anything to go by, investors will have plenty of time to monitor events before buying in. 

What's going wrong with 3M

While end market conditions have hardly been ideal in the industrial sector over the past five years, a look at a decade's worth of trading shows 3M's sustained underperformance versus the market and its peer. 

^SPX Chart

Data by YCharts.

The reason for 3M stock's poor performance comes down to failing to meet management's financial outlook objectives, the growing fear of litigatory actions over Combat Arms earplugs it sold to the military, and potential exposure to PFAS-related litigation

Putting the legal risk aside, 3M has a track record of missing its guidance over the years. Even more disheartening, its least economy-sensitive business, healthcare, has disappointed the most over the years -- so you can't blame the economy for the business's underperformance. It all results in a company losing the premium valuation rating it used to command over its peers, including Illinois Tool Works. 

I'm comparing enterprise value (EV, or market capitalization plus the cost to pay off debt) to earnings before interest, taxation, depreciation, and amortization (EBITDA) -- a commonly used valuation metric. 

MMM EV to EBITDA Chart

Data by YCharts.

3M takes action 

To be fair, 3M's management hasn't stood still. CEO Mike Roman has made structural changes to the business. 3M's business groups are now run globally instead of on a country-by-country basis, and the five operating segments were reduced to four in an attempt to streamline the business. In addition, management took more than $300 million in restructuring charges in 2021 to reduce costs over time. 

In a more dramatic move, 3M will spin off its healthcare business next year after a few years of aggressive acquisitions and divestments. For example, 3M bought advanced wound care business Acelity for an enterprise value of $6.7 billion in 2019, as well as M*Modal's artificial intelligence business for an enterprise value of $1 billion in the same year. It sold its drug delivery business for $650 million in 2020, and its food safety business will be combined with Neogen this year.

Unfortunately, these measures haven't notably released value for investors just yet or produced tangible improvements in the company's margins.

Where next for 3M?

That said, the example from Illinois Tool Works suggests that industrial conglomerates can significantly improve. Since 2013, 3M's peer has been on a drive to generate margin expansion through fundamentally restructuring its business by relentlessly focusing on its key customers that create the majority of its revenue. Its focus on key customers makes implementing its "customer-back" process easier, whereby innovations are generated from customer feedback, and "not from the research and development center out," according to the company. Simplifying its business, removing less profitable product lines, developing products in line with customer feedback -- it may seem like simple blocking and tackling, but it's highly effective. As you can see below, 10 years ago, 3M's operating profit margin exceeded its peer's, but that relationship has flipped.

MMM Operating Margin (TTM) Chart

Data by YCharts.

All told, the opportunity for improvement at 3M is significant. However, as the example of Illinois Tool Works demonstrates, that potential is a multi-year one, and there was plenty of time to buy the stock (Illinois Tool Works) after it became clear that its profit margins and operational performance were improving.

Waiting until 3M's management can demonstrate solid progress on improving profit margin before buying into the stock makes sense.