Colgate-Palmolive Stock Underperformed The S&P Despite Consistent Sales Growth- Here’s Why
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We believe that Procter & Gamble stock (NYSE: PG) and Colgate-Palmolive stock (NYSE: CL) in the consumer-defensive sector, can be avoided. Still, if one has to invest in one of these two companies, P&G is likely a better pick, in our view. Although P&G is trading at a comparatively higher valuation of 4.0x trailing revenues vs. 3.4x for Colgate-Palmolive
, this gap in the valuation makes sense, given the former’s superior revenue growth, profitability, and financial position, as discussed below.

If we look at stock returns, CL, with -4% returns in the last twelve months, has fared better than PG stock, down 10%, and the broader S&P500 index, down 8%. There is more to the comparison, and in the sections below, we discuss why we believe PG stock will offer better returns than CL stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Colgate-Palmolive vs. Procter & Gamble
: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. P&G’s Revenue Growth Is Better

  • Both companies posted sales growth over the last twelve months. Still, Colgate-Palmolive’s revenue growth of 3.1% is marginally higher than 2.5% for P&G.
  • However, if we look at a longer time frame, P&G fares better, with its sales rising at an average annual growth rate of 5.8% to $80.2 billion in 2022, compared to $67.7 billion in 2019, while Colgate-Palmolive saw its sales grow at an average rate of 4.6% to $18.0 billion in 2022, vs. $15,7 billion in 2019.
  • Colgate-Palmolive is a leading manufacturer and distributor of household, health care, personal care, and veterinary products in global markets. It derives around 45% of its revenue from oral care products.
  • It has also seen its sales rise over the recent quarters based on pricing growth, partly offset by volume decline and forex headwinds. This trend is expected to continue in the near term.
  • P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. It has also seen a steady rise in sales over recent years. In 2022, the company reported a 5% rise in total sales, driven by a 2% growth in unit volume.
  • However, in its latest quarter, P&G reported a 1% decline in reported sales, primarily due to forex headwinds. Organic sales grew 5%, driven by better price realization, but shipment volume declined.
  • Given the challenging environment of high inflation, rising interest rates, a strengthening U.S. dollar, and the economy feared to go into recession, Colgate-Palmolive and P&G’s volume will likely be adversely impacted in the near term. That said, better price realization should aid sales growth.
  • Our Colgate-Palmolive Revenue Comparison and Procter & Gamble Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, both companies are expected to grow their revenue similarly over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 2% for both – Colgate-Palmolive and P&G– based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. P&G Is More Profitable

  • P&G’s operating margin of 22.2% over the last twelve months is better than 14.8% for Colgate-Palmolive.
  • This compares with 8.8% and 21.0% figures in 2019, before the pandemic, respectively.
  • If we look at the recent margin decline, P&G has fared better, with the last twelve months vs. last three-year margin change at -1%, compared to a -3% change for Colgate-Palmolive.
  • P&G’s free cash flow margin of 18% is also higher than the 14% for Colgate-Palmolive.
  • Our Colgate-Palmolive Operating Income Comparison and Procter & Gamble Operating Income Comparison dashboards have more details.
  • Looking at financial risk, P&G fares better, with its 10% debt as a percentage of equity lower than 12% for Colgate-Palmolive. Furthermore, its 6% cash as a percentage of assets is also marginally higher than 5% for the latter, implying that P&G has a better debt position and has more cash cushion.

3. The Net of It All

  • We see that P&G has demonstrated better revenue growth over the recent years, is more profitable, and offers a comparatively lower financial risk. On the other hand, Colgate-Palmolive has seen better revenue growth over the recent quarters and is trading at a relatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both CL and PG stocks are unlikely to offer good returns in the next three years. Still, if one is willing to invest in one of these two consumer defensive stocks, PG stock is a better choice of the two, in our view.
  • The table below summarizes our revenue and return expectation for both companies over the next three years and points to an expected return of -11% for Colgate-Palmolive over this period vs. a 1% expected return for P&G stock, based on Trefis Machine Learning analysis – Colgate-Palmolive vs. Procter & Gamble – which also provides more details on how we arrive at these numbers.

While PG stock may outperform CL stock in the next three years, it is helpful to see how Colgate-Palmolive’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Citrix Systems vs. Procter & Gamble.

With higher inflation and the Fed raising interest rates, among other factors, CL stock has fallen 4% in the last twelve months. Can it drop more? See how low Colgate-Palmolive stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

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