Despite a daily loss of 2.05% and a 3-month loss of 8.52%, Clorox Co (CLX, Financial) boasts an Earnings Per Share (EPS) (EPS) of 1.19. But does this make the stock modestly undervalued? Our valuation analysis aims to answer this very question. We encourage you to read on to understand the financial intricacies of Clorox Co (CLX).
Introduction to Clorox Co
Clorox Co has a rich history spanning over 100 years. It has diversified its portfolio to include cleaning supplies, laundry care, trash bags, cat litter, charcoal, food dressings, water-filtration products, and natural personal-care products. The company's namesake brand is complemented by others like Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Fresh Step, Glad, Hidden Valley, KC Masterpiece, Brita, and Burt's Bees. About 85% of Clorox's sales are generated domestically.
The company's stock price stands at $150.7, while the GF Value, an estimation of the fair value, is $167.42. With a market cap of $18.70 billion, Clorox Co appears to be modestly undervalued. Here's a look at the income breakdown of Clorox Co:
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical multiples, an adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
When the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock is likely undervalued, and its future returns could be higher. Currently, Clorox Co's stock price is below the GF Value Line, indicating that it's modestly undervalued.
Because Clorox Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Clorox Co
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, understanding a company's financial strength is crucial before deciding to buy its stock. A good starting point is examining the cash-to-debt ratio and interest coverage. Clorox Co has a cash-to-debt ratio of 0.13, which is worse than 74.87% of 1787 companies in the Consumer Packaged Goods industry. GuruFocus ranks the overall financial strength of Clorox Co at 5 out of 10, indicating fair financial strength.
Here's a look at the debt and cash of Clorox Co over the past years:
Profitability and Growth of Clorox Co
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Clorox Co has been profitable 10 years over the past 10 years. In the past 12 months, the company had revenues of $7.40 billion and Earnings Per Share (EPS) of $1.19. Its operating margin of 11.14% is better than 75.8% of 1818 companies in the Consumer Packaged Goods industry. GuruFocus ranks Clorox Co's profitability as strong.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Clorox Co is 4.2%, which ranks worse than 57.68% of 1713 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is -26.6%, ranking worse than 90.01% of 1522 companies in the same industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Clorox Co's ROIC was 11.96 while its WACC came in at 5.52.
The historical ROIC vs WACC comparison of Clorox Co is shown below:
Conclusion
Overall, Clorox Co (CLX, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 90.01% of 1522 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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