Can Clorox stage a comeback?

Clorox was a godsend.

In 2020, their wipes and bleaches became pandemic gold.

Shares climbed over 50% to all-time highs.

And just as suddenly as the money flows came, they vanished.

But has institutional money seen something we haven’t?

Our TrackstarIQ identified a surge in search volume among top advisors.

Earnings aren’t for another week.

So what gives?

We took a deep dive into the company’s financials and charts to see what we could find.

And frankly, we like what we see…

Inflation nation

Rival Proctor & Gamble (PG) recently announced price increases for consumers.

With commodity costs on the rise, they decided to pass some of it along.

Clorox isn’t immune to those pressures. 

In their latest earnings call, they noted that margins would feel the pinch.

Yet, they’ve enjoyed a much higher operating margin the last year. Adding in inflationary pressures probably brings them back in line with their historical averages.

Stay clean, stay healthy

Bears argue that demand for their products will drop as reopenings occur.

That seems somewhat short-sighted.

Sure, marginal demand related to the pandemic might decrease. But we’re going to be living with Covid for years. And for most of us, we changed the way we live.

A lot of value to be had

Let’s put things in perspective.

Shares sold off hard, now landing around $190.

That puts their price-to-earnings (P/E) ratio at 19.87x, well under the S&P 500.

Even if the company suddenly fell back to its 2019 performance, that would raise its P/E ratio to 30x, which is in line with the markets.

And think about that for a moment. That would imply that CLX didn’t grow organically at all over the last 12 months, which is highly unlikely.

Here’s a great chart that illustrates the disparity in value between Clorox and the S&P 500.

Their balance sheet is rock solid with very little debt. And right now, the company pays a healthy 2.28% dividend.

Not a bad spot on the charts

When you look at the all-time high of ~$240 and the low from 2019 of ~$145, we’re right above halfway in between. That’s not a bad spot to look for an entry.

But, let’s say you’re worried about the overall market heading lower.

One common technique is to buy the stock you like and sell a broader market ETF like the SPY.

If you size them appropriately, you can bet on the difference in performance between the two over some period of time.

Our hot take

This isn’t going to have the sex appeal from the pandemic. But, advisors probably have it right this time.

Shares appear to be oversold compared to the broader market. And estimates about revenue and margin contraction might be overblown.

That leaves some interesting long-term upside potential.

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