About Ecolab
49,000 employees and over 170 countries. Products in places such as your favorite neighborhood restaurant to the nearest hospital. However, it doesn’t feel like you find Ecolab; Ecolab finds you!
St. Paul, Minnesota-based Ecolab is a sanitization company.
Specifically, they offer products and services ranging from (mandatory) health inspections and water filtration to hand sanitization stations and soaps. While Ecolab’s competition is relatively slim, the few competitors they go up against are forces to be reckoned with.
For instance, a few of Ecolab’s formidable competitors include Clorox, Cintas, Georgia Pacific, and even sanitization behemoth Purell.
While there are a few big names trying to seize market share from Ecolab, the company’s individual track record of success and market domination is encouraging.
Founded in 1923, the company maintains various revenue streams through its diversified yet focused business lines.
At the end of the day, when you think of Ecolab, think “one of the most prominent companies that cleans stuff.”
valuation
Ecolab’s stock is currently overvalued. Trading at a price to earnings (P/E) ratio of nearly 58 (anything greater than 20 tends to be overvalued), the company’s current intrinsic value (value of the company, specifically, its assets and what they are worth), is estimated to be around $190 (As of today, 1/20/2022, Ecolab is priced at $215.55).
However, this isn’t necessarily a company that you want to sit, wait, and hope the market gets clobbered, just so you can buy Ecolab at a relative discount. While some companies are pure “buy the dip and sell the high” stocks, Ecolab is a household staple in its industry with a lot of value. If the stock were not to move at all in the next five, ten, or twenty years, staying around its current share price level, the stock would still be a proven store of value for investors.
Needless to say, it is our opinion that Ecolab is a good place for boring, financially prudent investors to store their capital.
In fact, in their relatively concentrated portfolio of stocks, Bill Gates’ investment firm reportedly owns billions of dollars’ worth of Ecolab stock.
But, waiting for the stock to trade down a little bit (maybe closer to $200) isn’t a bad idea!
In fact, in recent history, the stock has been somewhat volatile, trading as low as $208 in October 2021.
While there might be chances to buy Ecolab at a discount again in the near to intermediate future, don’t wait forever.
Let’s talk fundamentals.
Ecolab is a $64 billion company, that generated annual revenues (in 2020) of nearly $12 billion.
The company offers shareholders an annual dividend of $2.04 and holds a relatively strong balance sheet. Specifically, Ecolab has $18 billion in total assets paired with almost $11 billion in total liabilities. Given their industry-leading position and strong recurring (and required) and diversified revenue streams, the company should have little to no problem paying down their debt over time like any other reputable, major corporation.
However, as previously mentioned, most of Ecolab’s current financial metrics point to the stock itself being slightly overvalued; we won’t continue to bore you with the details.
Nonetheless, we did find it encouraging that all of Ecolab’s profit margin metrics (gross, operating, net) stand above their industry’s average. The ability for Ecolab to continue to churn out profits in order to continue pursuing activities such as share buybacks, investing in new projects or viable business lines, and slowly pay down their debt is music to our ears.
Another metric of note involves Ecolab’s rate of growth. Their historical growth numbers sadly aren’t all that exciting.
Consequently, maybe that’s one of the reasons we like Ecolab in the first place!
Ecolab’s financial growth
While the company has a notably slower growth rate compared to industry competitors, this points to the fact that Ecolab could potentially be saving room for future growth. On the other hand, the fact of the matter is that major companies like Ecolab can only grow so much when they’re already dominating their respective industry.
After all, we aren’t traders, we’re investors. We buy value and market presence, not fads.
Ecolab is the titanic and many of its rivals are dinghies.
While we don’t mean for this analogy to indicate that the company is a ship that is ready to sink, we mean that Ecolab is so large that it can only react, adapt, and execute so quickly. The company already maintains a large amount of market share, thus, can only grow so much more before not being able to grow anymore.
However, with the heightened societal value for cleanliness and sanitization products stemming from COVID-19, the future looks spick and span for Ecolab. This is one of the reasons we see and have bullish sentiment for the company and its stock going forward.
Demand for their hand sanitization stations, filtration devices, and other cleaning products likely grew dramatically during the peak of the pandemic, as it did greatly for its competition.
Given a few of the aforementioned financial discoveries and global shifts we’ve presented regarding Ecolab, they’ll likely continue offering a dependable, slow, stable, and clean ride to the top.
The Future of Ecolab
Is Ecolab going to be around until the end of time? Yes.
Will they always have a global customer base to sell its products and services? Yes.
Will small mom-and-pop-shops and global corporations need to be able to pass their health and safety inspections? Yes.
The simple fact of the matter is that people need clean water and sanitized, safe materials to use on a daily basis everywhere. This is their core business.
Thankfully, Ecolab is likely to stick to its clean craft after recently venturing into a line of business (oil chemicals) that resulted in a $2 billion loss.
Thankfully, given their size and financial strength, the company was able to make that mistake and get back to its core competencies before any further shareholder suffering.
While you don’t want billion-dollar losses to be common for a company you’re invested in, we like that Ecolab took a hike on an unbeaten trail of its business. As briefly alluded to before, they can afford to make mistakes every now and again (not necessarily $2 billion mistakes). However, after the temporary setback, the company is likely to continue operating in its previously proven spaces and even possibly make smaller external business expeditions in efforts to continue growing and owning new (but related) categories.
We also find it encouraging that the company didn’t continue chasing the venture, further hurting stakeholders and shareholders (including themselves). As long as Ecolab sticks to its core competencies and dominates their categories, innovating and testing new concepts once in a while and keeping customers satisfied, their financial future looks squeaky clean.
Slow and steady wins the stock market race!
Should you Buy Ecolab Stock?
If investors consider the current share price too high, that’s fair; it is. If they want to wait for the stock to drop down to more affordable levels, that makes sense too. However, Ecolab isn’t one of those companies that you buy the drip for the sake of wishfully staging a short-term profit.
Ecolab has a proven track record of excellence, business segment diversification (while generally sticking to their bread and butter), and will always have customers (and regulators) who need them.
We currently give the company a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security and/or company is in no way to be construed or understood as professional investment advice. We are simply expressing our opinion(s) regarding the publicly traded entity.