[1] Market Valuation: At P/S of 4.6, PG is trading at a more expensive price compared to 2.3 for KMB
Market ValuationProcter & GambleKimberly Clark Corporatonvs Kimberly Clark CorporatonAs of 10/20/2021 Price To Sales Ratio (P/S)4.62.3More ExpensivePrice To OpInc Ratio (P/EBIT)25.415.3More ExpensivePrice To Earnings Ratio (PE)34.622.2More Expensive
[2] Growth & Profits: Considering the valuation, the market appears to be rewarding PG's higher growth and demonstrated profit generation ability - PG has demonstrated better revenue growth: 4.5% annually in last 3 FY, 7.3% LTM, 7.1% last Q (yoy), and 4.6% last Q (qoq) - In comparison, KMB has grown at 1.4%, 0.5%, 2.2%, and -0.9% respectively, during the same periods - Similarly, PG has shown greater profit generation promise: PG, 18.2% margin, 0.8% margin expansion, and 24.1% cash flow - The corresponding values for KMB stand at 14.6%, -1.4%, and 12.3%
Growth & ProfitProcter & GambleKimberly Clark Corporatonvs Kimberly Clark Corporaton As of 10/20/2021 Revenue GrowthLast Q Growth (QoQ)4.6%-0.9%Growing FasterLast Q Growth (YoY)7.1%2.2%Growing FasterLTM Growth7.3%0.5%Growing FasterLast 3 Fiscal Year CAGR4.4%1.3%Growing Faster ProfitabilityLTM OpInc Margin18%15%More ProfitableLast 3 Fiscal Year OpInc Margin Change16%5.6%More ImprovementLTM FCF Margin24%12%Higher Cash Flow %
[3] Financial Risk: Then, is the market ignoring risk to PG? Unlikely as the company does not appear to be at higher risk vs KMB - PG has a better debt position, with debt as % of equity of 9.1% vs 20.8% for KMB - PG has more cash cushion, with cash as % of assets of 8.6% vs 1.7% for KMB
Financial RiskProcter & GambleKimberly Clark Corporatonvs Kimberly Clark Corporaton As of 10/20/2021Debt as % of Equity9.1%21%Lower Debt LoadCash as % of Assets8.6%1.7%Better Cash Position
[4] Market Returns: PG is expensive, but has higher growth and lower risk; Appears to be a reasonable choice but what about market returns? - PG has higher average annualized return of 15.4% vs 6.5% for KMB 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
MetricsPGKMB Recent Returns YTD1.1%-3.8%LTM-.9%-14.0%Pre-Covid To Now24.2%-1.1% Last 3 Years Returns71.8%19.3%Sharpe Ratio1.180.43Max Drawdown-.8%-7.2%
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