In connection with potentially strong volume growth, investors should keep an eye out for signs of stability in the company’s European operations. While most of its competition saw negative volume growth in Europe, Colgate-Palmolive was able to maintain its volume last quarter. Given that European operations have been a drag on the company’s performance, any signs of increased volume in the region would be a huge positive for the stock.
Keep on Keeping on
Sometimes the best way investors can gauge a company’s strength is just by looking for continued strength in a few key areas. Companies don’t always have to improve their performance as much as maintain impressive performance to be a good long-term investment.
In Colgate-Palmolive’s case, the company’s gross margin leads their peer group by a comfortable amount. In the last quarter, the company’s gross margin was 58.6%. This number was impressive considering that Colgate-Palmolive’s gross margin last quarter was 58.3%, and last year this number stood at 58%. While it would be nice to see the company continue to grow its gross margin, given the lead over its peers I think investors should be more than happy if the company can continue this dominance.
When you consider that their peer with the second-best gross margin is The Procter & Gamble Company (NYSE:PG) at 49.8%, and that The Clorox Co (NYSE:CLX)’s margin is just over 42%, you can see what a large lead Colgate-Palmolive enjoys. Unfortunately for Kimberly Clark Corp (NYSE:KMB) investors, the company’s strong volume growth is being somewhat muted by the company’s relatively low gross margin of 34.26%.
A final way investors can look for continued strength from Colgate-Palmolive is in the company’s ability to continue increasing prices to offset cost inflation. Generally speaking, companies that can increase prices and still grow volumes should be favored over companies that see flat or declining volumes with increased prices. Given that Colgate-Palmolive was able to increase prices 2% in North America and 3% in Latin America in the last quarter, investors should look for continued pricing strength in these two areas.
In fact, I would argue that Colgate-Palmolive’s pricing strength and volume growth combination is what sets the company apart from their competition. Investors in Colgate-Palmolive have a lot to look forward to in the upcoming weeks. If the company can continue producing volume and pricing gains, combined with strong margins, the stock should do fine.
Any improvement in the company’s European operations would be a big positive and could give a lift to the stock. After a decent run over the last several months, if Colgate-Palmolive can stick with its strengths, long-term investors should be more than happy with the results.
Chad Henage owns shares of Colgate-Palmolive. The Motley Fool recommends Kimberly-Clark and Procter & Gamble. Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Bright Outlook Based on These 4 Measures originally appeared on Fool.com is written by Chad Henage.
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