Stock Deep Dive: Colgate-Palmolive

About Colgate-Palmolive

Colgate-Palmolive (NYSE: CL) is one of the oldest American companies that is still around today, founded in 1806.

What started as William Colgate’s candle business eventually blossomed into something a lot larger. In fact, the company has become one of the world’s leading health and chemical conglomerates. The company is a major player in various markets. From toothpaste to deodorant and various other daily household use products that you likely have on your kitchen and bathroom sinks, Colgate-Palmolive bears a relatively strong moat in a competitive industry.

Some of the competition includes giants such as Procter & Gamble, Unilever, Clorox and a slew of other formidable competitors in the consumer goods space. Although the industry is cutthroat, Colgate-Palmolive appears to have strong footing thanks in large part to the brands under their conglomerate.

While a large global company, Colgate-Palmolive is quiet.

What we mean is, they are home to many of the brands that everyone uses on a daily basis without ever knowing. We took a stroll over to their brands page and were shocked to see the amount of Colgate-Palmolive that reside in our own homes.

Brands such as Palmolive (dish soap), Tom’s of Maine (toothpaste), Colgate (toothpaste), Softsoap (hand soap), Fabuloso (all-purpose cleaner), Speed Stick (deodorant), and Ajax (detergents and cleaning products) might ring a bell.

The fact of the matter is that many people use these products and will likely continue to use them, irrespective of the state of the economy. Specifically, it would likely be quite difficult for homes to go without dish soap, toothpaste, and other types of soap products (ie. hand soap) that they’re accustomed to constantly using.

While we believe a general run-down of a company and what they do is important and a potential indicator of their future, it is essential that we discuss the single factor that makes or breaks any business, numbers.

Let’s see how financially viable and robust the Colgate-Palmolive conglomerate is!

Colgate-Palmolive’s Numbers

Colgate-Palmolive raked in $17.42 billion in revenue in 2021 (beating 2020 revenues by a little less than a billion dollars) and has a current market capitalization of $67 billion.

According to their historical five-year stock chart, this stock is boring.

Past stock chart movement alone, the stock is not one to buy if you are seeking annual, compounded growth (excluding dividends). The stock has moved roughly 10.5% to the upside over the past five years (which is not bad), however, other corporations similar to Colgate-Palmolive such as Procter & Gamble, Clorox, and Kimberly-Clark have delivered investors higher historical returns as it relates to share price alone.

While this company isn’t likely going to score you double-digit returns like some of its competitors, it doesn’t seem (the opinions of our team) to be a bad idea to be a shareholder in Colgate-Palmolive.

Colgate-Palmolive Stock Investment

Colgate-Palmolive is a “store of wealth” investment.

In other words, if you’d like to invest a nest egg into a safe, boring stock, Colgate-Palmolive hasn’t been a bad choice and likely won’t be a bad choice going forward. The company currently offers an annual dividend of $1.80 that is likely to be kept (and hopefully increased) until the end of time.

Many of the stocks we have performed previous analysis on have performed quite well historically and have usually seen a gradual rise in share price; Colgate is different.

Colgate barely moves. However, many companies similar to CL in terms of size, global presence, and brand recognition plummeted during COVID-19 (and still continue to drop now). While COVID-19 was initially a shock to everyone, many companies are still bearing the major brunt that has stemmed from the weakening links keeping the supply chain ever so slightly intact.

While stocks left and right were making considerable drops to the downside, Colgate-Palmolive’s stock was just being itself; boring!

Colgate-Palmolive and Recessionary Pressure

Everything is good until it’s not.

Many of the growth staples and the best blue-chip stocks are generally always performing well for investors until the market plummets, the world economy shuts down, and supply chain woes and inflation concerns are simultaneously threatening the market.

To many investors, Colgate-Palmolive is a dud that should be avoided. However, the same investors that deem the company’s stock a dud are likely the same ones that will likely wish they had Colgate-Palmolive stock as a form of market insurance when the market faces downward pressure(s).

Assumptions and opinions aside, let’s get back to the main topic of discussion.

Let’s walk you through some of the financial metrics driving Colgate-Palmolive.

Colgate-Palmolive’s Financials Continued

The company’s current price to earnings ratio stands at 31.04. As mentioned in previous articles, a price to earnings (P/E) ratio of above 20 is generally categorized as overvalued. While valuation is important, we don’t think a single valuation metric should have much bearing on an investor’s overall appetite for Colgate-Palmolive.

In other words, given that the company’s stock hasn’t moved much in the past, we don’t think saving an extra dollar or two on buying the stock at $77 as opposed to $79 should necessarily be your biggest concern when investing in Colgate-Palmolive.

Don’t necessarily put long-term investment plays on hold due to short-term, small price movements. You’re buying that stock because you think it will preserve your wealth over time, whether that means delivering double digit annual returns or shielding your capital from overall economic volatility.

Investment principles aside, there are other metrics that potentially speak to the company’s long-term success and viability.

The conglomerate oversees approximately $15 billion in total assets and $14.4 billion in total liabilities, escaping a black and nearly red balance sheet by the skin of their Colgate clean teeth. Later, we will evaluate their ability to pay down their debt and make their balance sheet a little more investor friendly.

However, as it relates to recent financials, their total revenue has been somewhat flat over the last four quarters (which we think is a positive given the recent and current market environment) at around $4.3 billion.

Their income and cash flow statements are indicative of a mostly stable, boring portfolio conglomerate corporation.

We love it.

Now, let’s dive deeper into the intrinsic value and potential behind Colgate-Palmolive.

Colgate-Palmolive and Profitability

The company does a good job at converting revenues into profits. Specifically, their annual gross and operating profit margins are above the competition and their annual net profit margin is in line with the industry.

We expected this for a company as large and established as Colgate-Palmolive.

The company also appears to be quite efficient and effective with their assets, investments, and other available resources.

For instance, their annual returns on equity, assets, and investment all sit well above those of their peers. We consider this to be a huge checkmark of assurance for investors.

Finally, as previously explained, Colgate-Palmolive is relatively leveraged compared to its peers. The company holds a lot of debt relative to its aggregate assets. Their debt, like many other corporations, has increased at the onset and throughout COVID-19.

However, investors should rest assured that the company has the ability to pare down its long-term debt due to their operating profits sitting high and mightily above their debt interest payments.

Nonetheless, our team would like to see Colgate-Palmolive hew down some debt after the COVID-19 and supply chain struggles hopefully subside soon.

Colgate-Palmolive’s Future

As previously mentioned, Colgate-Palmolive has proven to be resilient in recent history; we don’t think this will change.

Like many companies in the household products and chemicals space, they maintain prominent pricing power. When companies like Colgate-Palmolive need to inch prices up in order to fend off inflation and other supply chain threats, they can.

Last April, the company beat sales expectations primarily by means of hiking prices on products sold throughout North America (as many other major companies have done in the past as well).

Colgate-Palmolive’s CEO, Noel Wallace, explained that the company was “battling the cost inflation across the board”, also explaining his focus on current and future cost management. While it seems as though the company expects these price hikes to remain in place during the beginning of 2022, if you’re an investor, you should feel fine.

As previously mentioned, Colgate-Palmolive is one of the few global companies that has fortified pricing power and resources at their disposal. If they can beat sales expectations before (in this current environment), they can likely continue impressing investors and providing products for their customers going forward.

Taking a step back from macroeconomic factors, take a second to think about Colgate-Palmolive and their products.

You can find this company’s products and brands in many (if not most) stores near you, wherever you happen to be.

This is one of our favorite aspects of the consumer goods space.

Whether a dollar store in a remote area of the country or your neighborhood gas station, it would be quite the challenge to not be to find at least one Colgate-Palmolive’s brands sitting on the shelves.

Additionally, it can be argued that the company holds somewhat of modified subscription-based business model. Specifically, they tend to sell relatively small packages of products that have relatively short turnaround before consumers need to purchase more. Additionally, short and long-term demand for the company’s products will likely rise due to consumers becoming more health and sanitization conscious.

While there is some stiff competition in their spaces such as deodorant, toothpaste, and other household essentials, consumers generally (especially in this current economic environment) are a lot more price-sensitive and therefore unable to shell out more of their hard-earned money to buy natural or organic competitors’ products.

Colgate’s pricing power is truly one of its greatest current, short-term, long-term assets.

Should you buy Colgate-Palmolive Stock?

Colgate-Palmolive needs to trim off some debt off of its balance sheet over time.

Thankfully, this is a long-term problem that will likely be fixed as the economy gets healthier and when supply chain threats began to wane. Unlike many other stocks we’ve analyzed, you shouldn’t necessarily buy Colgate-Palmolive and expect annual double-digit returns.

However, you should rest assured knowing your invested capital is in good hands when it’s in the clean hands of one the largest, most diversified, pricing power-dominant home products companies in the world.

We currently give the company a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed as or understood as professional or formal financial and/or investment advice. We are simply expressing our opinions regarding a publicly traded entity.