About Procter & Gamble
If you’re reading while inside your neighborhood Walmart, Dollar General or any other grocery store or relatively well scaled retail establishment for that matter, stop reading, look around and take a deep inward breath.
If you smell just hard enough, you should have little to no difficulty locating the store’s assortment of Procter & Gamble’s extensive line of products, particularly their cleaning products.
Just in case you don’t think you’re not being surrounded by P&G’s products, you are likely familiar with some of the company’s household brands which include Luvs, Pampers, Bounce, Downy, Tide, Gain, Bounty, Puffs, Charmin, Always, Tampax, Gillette, Venus, Head & Shoulders, Old Spice, Pantene, Dawn, Cascade, Gain, Febreeze, Swiffer, Mr. Clean, Crest, Oral-B, Pepto-Bismol, Vicks, Olay among many other brands that are slightly less known but absolutely well utilized by consumers globally each and every day.
So Procter & Gamble has some brand power, as seen with other companies we’ve previously analyzed.
In addition to the company’s extensive consumer reach, although we have previously written stock analysis articles on other consumer packaged goods (CPG) conglomerates, Procter & Gamble takes the cake and the cherries on the top as it is the largest CPG company (by revenue) currently headquartered in the United States.
All things considered, Procter & Gamble is a ginormous consumer packaged goods company that is home to a variety of brands that sell products, many of which are deemed to be necessities to everyday life.
This is one of the main reasons we have grown interested in this company in the first place.
Now more than ever, given the state of local and global affairs along with the macroeconomy, it feels like it’s more important than ever to add some defensive companies’ stocks into one’s portfolio, or at bare minimum, consider it.
However, we wouldn’t necessarily say it’s fair to indicate that there is inherently little upside in P&G’s stock and it should just be seen as a hedge and primarily a way to defend your capital during times of turmoil.
While there’s certainly a time and place for that sort of thinking, especially in today’s market environment, Procter & Gamble has been on offense for a while and this isn’t changing anytime soon, from our perspective. As a brief piece of evidence supporting this claim, it is one of the few companies that saw its share price appreciate dramatically from the public onset of COVID-19 to present day.
This is one of those companies that continues flexing its pricing power through incremental product price increases as well as retaining consumers throughout difficult times given the essentialness of its brands and their respective products.
For instance, people will continue to need toothpaste, diapers, around the house cleaning equipment among practically the rest of Procter & Gamble’s products irrespective of the state of the economy, which bodes fairly well for its current and prospective shareholders.
All of this isn’t to say that Procter & Gamble doesn’t have its fair share of formidable competitors such as The Clorox Company, Colgate-Palmolive, Unilever, SC Johnson among a trove of others.
It’s just to point out the fact that P&G is the cat’s pajamas when it comes to the household products and goods space.
While we’ve laid a foundation as to what the company does, where it makes its money, the basic nature of P&G’s business model and its relation (and ultimately exposure) to threat(s) of recession or other external variables and economic pressures, there’s no better critic than the financials themselves.
Let’s get on with it.
Procter & Gamble’s stock financials
Remember how we mentioned that Procter & Gamble is a large company?
If you didn’t believe us before, you might want to give us a second chance as the company’s current market capitalization is a whopping $360.67 billion.
In addition to its drastically large market cap, the company’s stock is presently trading at nearly $153, has a price-to-earnings (P/E) ratio of 26.27 and also offers its shareholders an annual dividend of $3.65, which is a really strong dividend, especially for a company that operates in the consumer goods space, which in many instances can be a low margin business category.
This information tells us, among other things, that P&G’s stock price is mildly overvalued at the moment, as its P/E ratio is a ways above 20, which is generally accepted to indicate that a stock is trading exactly at fair value or what it’s worth paying for today.
The question has now become whether or not this company’s stock is worth purchasing at a premium in this prevailing market environment, as we have made exceptions like this in the past with other stocks.
Let’s dive deeper into this company’s finances and try to figure this out.
Sidestepping over to Procter & Gamble’s balance sheet, the company’s executive team, which is filled with a lot of executive talent we might add, is comprised of around $117.2 billion in total assets along with nearly $70.7 billion in total liabilities.
We see this overall balance sheet structure as a nearly perfect one, as the company is total asset-heavy but also has some debt in order to continue financing its current and future growth, which is something we absolutely love seeing.
Suffice it to say you won’t find us complaining much at all about the company’s current balance sheet and general capital structure.
A short bit on the company’s executive team is in order, specifically P&G’s board of directors, as among many other talented and tenured executives it includes incoming board member and current chief executive officer (CEO) of FedEx, Raj Subramaniam, current president and CEO of McDonald’s, Chris Kempczinski, former executive chairman, chairman of the board and CEO of Macy’s, Terry Lundgren and many others at the helm of Procter & Gamble.
Enough about the company’s strong balance sheet and its all-star board member lineup, let’s move onto P&G’s income statement.
The company’s total revenue over the last handful of years sings a tune that eloquently graces our ears and brings a smile to our faces; a recession proof melody.
While the economy overall has been frothy, to say the least, P&G’s total revenue over each of the past five years has been steadily increasing, sitting at approximately $66.8 billion in 2018 and rising to its latest reported figure of around $80.1 billion, as reported in 2022 (6/30/2022).
This solidifies the fact that Procter & Gamble is largely immune to sizable economic turmoil and downturns and doesn’t just play defense well, but when it gets the ball, runs a mean offense as well.
Onto the company’s cash flow statement, the company’s net income since 2017 and its total cash from operations have been nothing but solid, as its net income has ranged between around $4 billion (2019) and $14.7 billion (2022) and its total cash from operations has remained fixed during the same time frame between $14.8 billion (2018) and $18.3 billion (2021).
Even throughout arguably some of the most strenuous supply chain challenges, not to mention the impacts COVID-19 had on P&G and other members of the Fortune 500 in terms of keeping their business(es) intact, this company has been able to keep a lot of net income flowing back into the business itself all while also carving out some cash in the process.
At this point, consistency is pretty much synonymous with Procter & Gamble in our books, given the data and information we’ve gathered thus far.
Procter & Gamble’s stock fundamentals
Say what you want about the consumer packaged goods (CPG) industry, but the margins can in some instances be relatively slim (as mentioned in previous paragraphs above) and therefore turning a consistent profit can be a difficulty as well.
Nevertheless, when it comes to P&G and its ability to not only turn a strong profit but outperform its peers from this standpoint, this company gets it done, even though the CPG space is very, very competitive.
Namely, according to TD Ameritrade’s platform, P&G’s trailing twelve month (TTM) net profit margin is 18.18% compared to the industry’s average of 15.53%. While P&G is ahead of the herd from a brand and marketing perspective, it is comforting to also see that the numbers back up P&G’s prominence and sheer domination in the space as well, again, even amidst all of the financial adversity it has faced in recent years (and now), along with its competitors.
Lastly, the company’s TTM returns on assets and investment are both greater than that of its peers’ averages. For example, P&G’s TTM returns on assets are 12.4% to the industry’s average of 11.69%. While not dramatically higher than the competition, we can definitely live with the fact that the company’s core returns (specifically on assets and investment) outpace that of the industry’s average.
Should you buy Procter & Gamble stock?
We like teams that can play a solid defense and a great, coordinated offense.
Procter & Gamble, according to the numbers and its exemplary track record appears to be just that.
Maintaining a more than solid annual net profit margin and having the bulk of its product offerings resistant to recessionary pressures are just some of the things P&G brings to the table for both customers and its shareholders.
Given all of this information, we give the company’s stock a “buy” 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.