About Clorox
As custom for devising the drafts of most of our stock analysis articles, we look up on the internet “what does (insert company name here) do…” and instantly before hitting the enter button on Clorox, our browser suggested “what does Clorox do to skin” and “what does Clorox do to your hair.”
Hopefully good stuff.
On a more serious note, some may be concerned with the amount of chemicals used in products manufactured and sold by companies like Clorox, which very well might be a valid concern. After all, how truly clean is something if it’s being actively drenched in substances or other additives that are hard to pronounce?
While we’re definitely not experts on the ingredients used in some of Clorox’s products, we do like to think we’re pretty good with numbers.
Before diving into the company’s financials and helping you gain a better idea as to whether or not the company’s stock is right for you, let’s give a bit of background on Clorox and its fascinating founding story.
Founded on May 3rd, 1913, five people invested $100 (a nice chunk of change at the time) in America’s first commercial liquid bleach factory called the Electro-Alkaline Company.
In 1914, the company started producing bleach and to fund growth, issued 750 shares of stock, raising nearly $8,000 (an even larger chunk of change).
Eventually, Electro-Alkaline Company became Clorox.
Since the early 1900s Clorox has become a consumer products dominator, manufacturing, marketing and selling household products such as bleach, fabric sanitizer, aerosols and an array of other products likely scattered around your local Dollar General or Walmart (among other outlets).
However, Clorox isn’t just engaged in selling consumer cleaning products.
We’d also like to note some of the brands owned by Clorox outside of its own brands. For instance, Clorox currently owns Glad, Hidden Valley (yes, the ranch), Kingsford (yes, the coals), Pine-Sol, Burt’s Bees (yes, the lip balm) and a few other brands.
Off the bat, our team perceives this list of well-known brands as quite scattered and borderline unfocused. Obviously, the executives at Clorox probably know more about these industries than we do, however at face this can be seen as a somewhat random bunch of companies under the Clorox umbrella.
Although not a lot of apparent synergy among these brands, they’re likely good assets and intellectual property to own nonetheless.
Now that you have a better understanding of the company’s background, what they sell and some of the brands they own, let’s get into the company’s numbers and figure out whether or not the company’s stock is worth considering investing in a century later.
Clorox’s stock financials
As of this writing the company is trading at a share price of around $146, has a market capitalization of $17.99 billion, a price-to-earnings (P/E) ratio of nearly 40 and pays out an annual dividend of $4.64.
Given this information, it can be inferred that Clorox’s stock price is quite overvalued, as a P/E ratio of 20 is generally considered to indicate that a company’s stock is trading at fair value and anything above typically implies that a stock is overvalued.
Additionally, while the company currently pays out a relatively high, attractive dividend, let’s dig deeper into their financials and get a better idea of whether or not they can support this dividend moving forward.
While death and taxes are pretty much guaranteed, dividends are most definitely not.
According to the company’s balance sheet, Clorox’s management oversees around $6.3 billion in total assets and nearly $6 billion in total liabilities. Our team thinks their total liabilities seem a bit high, however this could make sense given the extent and scale of their operations and different lines of business across the globe paired with the inflationary pressures they’ve experienced in past years (and likely are still experiencing).
As it relates to the company’s income statement, their total revenue has been steadily increasing over the past five years, standing at around $6 billion in 2017 and rising to nearly $7.4 billion in 2021. Our team is happy with this consistent yet steady growth in revenue in recent years.
While we were initially concerned about the company’s cash flow statement being somewhat sporadic with some years being positive and others being deep in the red, we were pleasantly surprised to find their net income consistent and positive over the past five years, ranging between $701 million and $939 million.
Clorox’s stock fundamentals
When it comes to profitability, our team was disappointed with the company’s ability to make a profit on a net margin basis. Specifically, their trailing twelve month (TTM) net profit margin currently stands at 6.57% to the industry’s nearly 16%.
We find it somewhat worrying that Clorox is one of the major leaders in the industry and still generates a considerably lower net profit margin than the competition.
Additionally, from a returns standpoint Clorox’s TTM returns on equity, assets and investment are all lower than that of the industry average as well.
In addition to having a large amount of total liabilities on its balance sheet, these numbers don’t bode well for the company nor do they invoke much confidence in our team.
An interesting proposition for Clorox
While Clorox already holds a considerable amount of market share, our team thinks it might be interesting if the company considered focusing on making strategic acquisitions, specifically in the household cleaning products space in order to possibly widen its margins and improve its other currently lackluster metrics.
For instance, it might be interesting (and even worth seriously considering) if the company sold off some of its brands (Hidden Valley, Kingsford, Burt’s Bees in particular), free up some cash from the proceeds of these sales, pay down more of its debt and after trimming up the balance sheet, look to possibly acquire a truly focused pioneer and leader in the household cleaning space.
The company that comes to mind is privately held Racine, Wisconsin-based SC Johnson.
You know, the family company.
SC Johson is a huge company with many valuable (and focused) brands in the general consumer and household spaces. Some of their brands include Glade, Scrubbing Bubbles, Shout, Windex, Raid, Ziploc and many more.
This acquisition could give Clorox the opportunity to get rid (and likely profit massively from the sale) of its current ambiguous brands all while narrowing the company’s focus on the home and competing at a higher level against companies such as Procter & Gamble and Church & Dwight. Over time, Clorox would likely be able to generate a higher TTM net profit margin as well and expand its customer base across the globe.
Additionally, some of the proceeds from the proposed sale of its currently held brands could be used to finance the likely expensive acquisition and pay down some of its already existing debt and total liabilities.
After all, gigantic proposed acquisitions in the consumer goods space aren’t exactly uncommon.
However, if the proposed acquisition proved to be too expensive for Clorox, they could explore other options such as purchasing much smaller yet brand powerful Lysol, which is currently owned by England-based consumer giant Reckitt. Another potential target they could consider acquiring is formidable household cleaning player, Libman.
Contingent upon antitrust regulatory agencies such as the Department of Justice (DOJ) and the Federal Trade Commission (FTC) and others approving the proposed acquisition(s), our team thinks this is a path worth exploring.
We simply think Clorox has some opportunities to use its capital more strategically.
Should you buy Clorox stock?
At the end of the day, our team sees Clorox as a very strong but unfocused brand heavy company with mediocre financials and a stock price that is currently overvalued.
While the company will likely be around until the end of time, we think there are better investment opportunities in the consumer goods space. One that comes to mind is Procter & Gamble.
Given all of this information, we currently give Clorox a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.