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Why Procter & Gamble Co Stock Quietly Became a Buy

PG stock's turnaround effort is taking hold

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To say the past few weeks have been concerning ones for Procter & Gamble Co (NYSE:PG) shareholders would be something of an understatement. The PG stock price is right where it was a year ago, having missed out on an incredible market-wide rally. Shares fell after sales missed estimates last quarter, and the company is still licking its wounds from a hard-fought (though won) proxy battle with activist investor Nelson Peltz.

And yet, one thing has largely been lost in the cloud of dust that’s surrounded this stock for far too long now. The overhaul being led by still relatively new CEO David Taylor is working where it counts the most.

PG Stock Turning the Corner

Giving credit where it’s due, Ian Bezek was spot-on earlier this week when he said:

“There can be a case for buying a stalled-out business if the price is right. However, PG stock at 23x earnings is seriously overvalued assuming management sticks with its current strategy. The 3.1% dividend simply isn’t high enough to justify paying such a huge PE ratio for a business that has seen shrinking revenues for years.”

What if, however, there was a glimmer of hope the “E” used in the PE ratio’s calculation was about to grow even if the top line was still shrinking?

This appears to be what’s in the cards for PG stock, with a hint of this progress already in the rearview mirror.

The image below tells the tale, or at least the early chapters of it. Revenue continues to dwindle, but non-GAAP income is finally on the mend as Procter & Gamble has gotten out of businesses it arguably should have never been in. Case in point? In 2015, it sold Clairol and Covergirl to rival Coty Inc (NYSE:COTY). The $12.5 billion in cash it got for the beauty brands was more fruitful than owning and operating the brands themselves.

Procter & Gamble (PG) Results, Outlook
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It’s a “just barely” situation, to be fair, at least in some regards. Last quarter’s top line of $16.65 billion was the first time in several quarters sales grew on a year-over-year basis. Earnings per share of PG stock, meanwhile, have been edging higher on a YOY basis for a couple of years now, even if that growth pace has been anemic.

It’s not been overly exciting, simply because investors want more and better and have been getting it from other companies. There’s also not a great deal of assurance P&G’s top line will start to grow at the pace presently predicted by analysts.

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