Although it is difficult to decipher whether or not the market is overvalued, or indeed undervalued, it is possible to gauge to a certain degree how much value is in an individual stock based on its historic valuation. So, based on an average of historic price-to-earnings multiples taken every day for the last five years, here are three stocks that appear overvalued compared to their own historic valuations.
The results
First up is Colgate-Palmolive Company (NYSE:CL). Colgate-Palmolive has been sought after for the past five or so years as investors look to the company to provide a source of calm in uncertain markets. However, this has now left the stock looking slightly overvalued. Indeed, over the past five years, Colgate-Palmolive Company (NYSE:CL) traded at an average trailing-12 month P/E of 20.3 but, the company now trades at a trailing-12 month P/E of 22.8, making it look about 12% overvalued.
Colgate-Palmolive Company (NYSE:CL)’s earnings yield is 4.2%, below the market average of 5.1% and signifying that the company is overvalued compared to the rest of the market.
Furthermore, Colgate-Palmolive Company (NYSE:CL) looks overvalued on other metrics. Compared to the rest of the sector, Colgate-Palmolive trades at a forward P/E of 18.7, compared to the sector average of 17. The company also trades at a price-to-sales ratio of 3.2 compared to the sector average of 1.9. Moreover, Colgate-Palmolive Company (NYSE:CL) trades at a price-to-book ratio of 31, more than three times greater than the sector average of 10.
Still, Colgate has under-performed the S&P 500 (INDEXSP:.INX) so far this, rising only 15% compared to the index’s 18.8%; but the stock has made most of its gains during the last two years.
Still, as a producer of the all essential toothpaste as well as other hygiene essentials, Colgate-Palmolive Company (NYSE:CL) is not going to see demand for its products fall any time soon. That said, Colgate’s growth is slow predicted to be 1% for this year. Moreover, Colgate’s debt has grown by 75% since 2010 and shareholder equity has fallen 20%, which is a worrying trend as eroding shareholder equity can destroy long- term shareholder value.
This candy maker looks too sweet
Second, Hershey Co (NYSE:HSY) , which has also been heavily sought after as investors seek safety in the defensive candy maker. However, right now the company looks overvalued on a historical basis. The company trades at a trailing-12 month P/E of 30 compared to its five-year average of 24, indicating that the company is overvalued by 25%.
Moreover, the company’s stock trades at a forward P/E ratio of 23 compared to the confectionery sector average of 17.2. Hershey Co (NYSE:HSY) also trades at a price-to-sales ratio of 3.1, which is 60% above that of its closest peers Mondelez International Inc (NASDAQ:MDLZ) and Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF), which trade at an average price-to-sales ratio of 1.9.
