[1] Market Valuation: At P/S of 3.7, CL stock is more expensive per dollar of sales compared to 2.3 for KMB
Market ValuationColgate Palmolive Co.Kimberly Clark Corporatonvs Kimberly Clark CorporatonAs of 11/19/2021 Price To Sales Ratio (P/S)3.72.3More ExpensivePrice To OpInc Ratio (P/EBIT)17.715.9More ExpensivePrice To Earnings Ratio (PE)24.322.3Similarly Priced
[2] Growth & Profits: Considering the valuation, the market appears to be rewarding CL's higher growth and demonstrated profit generation ability - CL has demonstrated better revenue growth: 3.6% last Q (qoq), 6.3% last Q (yoy), 7.3% LTM, and 2.1% annually in last 3 FY - In comparison, KMB has grown at 6.1%, 7.0%, 2.2%, and 1.4% respectively, during the same periods - Similarly, CL has shown greater profit generation promise: CL, 20.7% average margin, -2.5% average margin expansion, and 18.3% cash flow - The corresponding values for KMB stand at 14.2%, -1.8%, and 13.2%Note: Average margin is based on average of last Q, LTM, and last 3 FY, while margin change is based on last Q margin vs 3Y average
Growth & ProfitColgate Palmolive Co.Kimberly Clark Corporatonvs Kimberly Clark Corporaton As of 11/19/2021 Revenue GrowthLast Q Growth (QoQ)3.6%6.1%Growing SlowerLast Q Growth (YoY)6.3%7%Growing SimilarLTM Growth7.3%2.2%Growing FasterLast 3 Fiscal Year CAGR2.1%1.4%Growing Faster ProfitabilityLast Q OpInc Margin19.3%13.1%More ProfitableLTM OpInc Margin21.1%14.5%More ProfitableLast 3 Fiscal Year Average21.8%14.9%More ProfitableLTM FCF Margin18.3%13.2%Higher Cash Flow %
[3] Financial Risk: Then, is the market ignoring risk to CL? Unlikely as the company does not appear to be at higher risk vs KMB - CL has a better debt position, with debt as % of equity of 11.9% vs 19.9% for KMB - CL has more cash cushion, with cash as % of assets of 6.0% vs 1.6% for KMB
Financial RiskColgate Palmolive Co.Kimberly Clark Corporatonvs Kimberly Clark Corporaton As of 11/19/2021Debt as % of Equity11.9%19.9%Lower Debt LoadCash as % of Assets6%1.6%Better Cash Position
[4] Market Returns: CL is expensive, but has higher growth and lower risk; Appears to be a reasonable choice but what about market returns? - KMB has higher average annualized return of 7.5% vs 1.7% for CL based on key market periods - These key market periods include, year-to-date, pre-covid to now, and 1, 2, and 3 years prior to covid
Precovid date is taken as end of Feb 2020
Notes:
[1] Q = quarter, LTM = last twelve months, FY = fiscal years, yoy = year-on-year, qoq = quarter-on-quarter
[2] Revenue growth decision is made by giving more weightage to long-term revenue growth (3-year average) and lesser weightage to quarterly growths
[3] Margin mentioned is average of last Q, LTM, and last 3 FY; margin increase is average of increase in last Q vs LTM and increase in last Q vs 3-FY average