Clorox Co (CLX, Financial) has experienced a daily loss of -2.99% and a 3-month loss of -10.81%. Despite these figures, the company's Earnings Per Share (EPS) (EPS) stands at 1.19. This prompts the question: is Clorox Co modestly undervalued? In this article, we delve into a comprehensive valuation analysis of Clorox Co to answer this question. Keep reading to uncover the financial position and market value of this consumer goods giant.
Company Overview
Clorox Co, a century-old consumer products company, has a diverse portfolio that includes cleaning supplies, laundry care, trash bags, cat litter, charcoal, food dressings, water-filtration products, and natural personal-care products. With brands like Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Fresh Step, Glad, Hidden Valley, KC Masterpiece, Brita, and Burt's Bees under its umbrella, the company generates almost 85% of its sales from the domestic market. The company's current stock price stands at $138.44, while its GF Value, an estimation of fair value, is $167.76. This comparison suggests that Clorox Co might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. This value is calculated considering the historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
For Clorox Co, the GF Value suggests that the stock is modestly undervalued. With a market cap of $16.70 billion and a stock price of $138.44 per share, the company's long-term return is likely to be higher than its business growth due to its relative undervaluation.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss for investors. To avoid this, it's essential to review a company's financial strength before purchasing shares. The cash-to-debt ratio and interest coverage are two significant indicators of a company's financial strength. Clorox Co's cash-to-debt ratio stands at 0.13, ranking worse than 73.78% of 1800 companies in the Consumer Packaged Goods industry. Overall, Clorox Co's financial strength is fair, with a score of 5 out of 10.
Profitability and Growth
Companies that consistently show profitability over the long term offer less risk to investors. Clorox Co has been profitable for the past ten years, with a revenue of $7.40 billion and an Earnings Per Share (EPS) of $1.19 over the past twelve months. Its operating margin of 11.14% ranks better than 76.89% of 1830 companies in the Consumer Packaged Goods industry. Overall, Clorox Co's profitability is strong, with a rank of 8 out of 10.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. However, Clorox Co's growth ranks worse than 90.17% of 1526 companies in the Consumer Packaged Goods industry, with a 3-year average annual revenue growth of 4.2% and a 3-year average EBITDA growth rate of -26.6%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For Clorox Co, the ROIC for the past 12 months is 11.96, and its WACC is 5.7.
Conclusion
In summary, Clorox Co (CLX, Financial) appears to be modestly undervalued. The company has fair financial strength and strong profitability, despite its growth ranking worse than 90.17% of companies in the Consumer Packaged Goods industry. To learn more about Clorox Co stock, check out its 30-Year Financials here.
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