The Foolish Fundamentals
Let’s see how Colgate-Palmolive stacks up to two other big, multinational consumer products manufacturers – The Procter & Gamble Company (NYSE:PG) and The Clorox Company (NYSE:CLX).
Procter & Gamble recently disappointed investors with poor organic growth, caused by price hikes that drove consumers to buy cheaper generic brands. Meanwhile, Clorox posted strong second quarter earnings that easily topped forecasts.
Both Procter & Gamble and Clorox have been heavily pressured by activist investors for their perceived complacence and stagnation. William Ackman attempted to oust P&G’s CEO Robert McDonald, while Carl Icahn pushed Clorox to sell itself in 2011.
In contrast, Colgate’s major stakeholders have stayed calm and quiet. Perhaps this chart explains why Colgate-Palmolive shareholders are happier with their company.
All three companies have been using similar expansion tactics into emerging markets to even out its global bets. Clorox is also heavily exposed to Venezuela and the Latin American market, which has weighed on its stock recently.
| Forward P/E | 5-year PEG | Price to Sales (ttm) | Debt-to-Equity | Profit Margin | Return on Equity (ttm) | |
| Colgate-Palmolive | 16.67 | 1.82 | 3.04 | 218.83 | 14.47% | 106.71% |
| P&G | 17.26 | 2.30 | 2.50 | 49.65 | 15.50% | 17.51% |
| Clorox | 17.32 | 2.19 | 1.89 | 4,775.00 | 10.03% | N/A |
| Advantage | Colgate | Colgate | Clorox | P&G | P&G | Colgate |
Source: Yahoo Finance
Colgate has two key advantages – valuation and past growth. Colgate trades at a slight discount to its rivals, while posting stronger past performance over the past twelve months. However, Colgate’s debt-to-equity ratio, while lower than Clorox’s, is an eyesore that should prompt us to examine its cash reserves, free cash flow and debt levels over the past five years.
CL Cash and Equivalents data by YCharts
Colgate is growing cash at a healthy rate, but its long-term debt – at $5.23 billion – is still rising. Colgate needs to reduce its long-term debt while boosting its free cash flow and cash holdings.
Top and Bottom Line Growth
However, those fundamentals don’t tell us enough about top and bottom line growth. Let’s chart Colgate-Palmolive’s growth against Procter & Gamble and Unilever to get a better idea of where it stands.
CL Revenue TTM data by YCharts
Colgate has grown revenue and earnings much faster than both companies, primarily due to its exposure to fast-growing emerging markets. Its centralized dominance of the toothpaste and toothbrush markets also gives it far stronger brand identification than Procter & Gamble or Clorox.
The Bottom Line
Colgate-Palmolive is an ideal stock for conservative, slow-growth investors. The stock has a low beta, which means it is less volatile, and pays a quarterly dividend of 62 cents per share – a 2.29% yield at the time of this writing. The company’s core business is easy to understand and its strong brands are globally recognized. The stock has sturdy margins and financials and is trading at a discount to its competitors. Rising debt levels and macro concerns in Latin America are concerns but should not discourage investors from buying shares.
As long as people need to brush their teeth, wash their dishes or scrub their floors, Colgate-Palmolive will be a reliable, steady income stock that belongs in your portfolio.
The article Sparkling Teeth and Strong Returns originally appeared on Fool.com and is written by Leo Sun.
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