Clorox (NYSE:CLX) stock has brought the company back in the headlines. After a 35% increase over the last six months, many wonder whether the time has come to buy Clorox stock.
To be sure, the company has pushed forward many initiatives that have drawn interest to the stock. Product innovations and price increases have helped to boost its products.
However, for all of these accolades, Clorox remains a slow-growth, dividend stock. Headlines indicating otherwise have often served as a contrarian signal to sell the stock. Given the valuation metrics and the history of the stock, I would urge caution on Clorox.
CLX Stock and a New Commitment
Household products stocks typically receive less attention than stocks like Amazon (NASDAQ:AMZN) or Tesla (NASDAQ:TSLA). However, CLX stock has moved like a tech equity in recent months. Now, investors want to know whether this rally will continue.
First, investors should not write off Clorox stock as a boring equity revolving around its namesake product. In reality, the company has built a household products empire. In addition to Clorox bleach, it can count Liquid-Plumr, Hidden Valley salad dressing, Brita water filters, and many other household staples among its line of products.
Moreover, the company’s stock has risen by selling these products at greater volumes and higher prices. Acquiring Nutranext also helped to boost both the top and the bottom lines.
Furthermore, Clorox has implemented initiatives that should improve the bottom line. The Clorox 2020 Strategy promises to increase category growth for specific products.
The company also hopes it will bring increased market share for the company in general. Clorox also has focused on an ecommerce plan to improve sales and a “Go Lean” initiative for better operational efficiency.
Sell Clorox Stock on the Headlines
However, I think the stock price increase and the headlines generated by that move serve as a contrarian sign to sell. This proved to be the case on a smaller scalein January when I last looked at Clorox stock.
At that time, I urged investors to sell on valuation. After I made that call in the $143 per share range, the stock fell by about 20% over the next six months. However, the rally began after the April low. As a result, the stock now trades in the $165 per share range.
Due to profit growth, its forward price-to-earnings (PE) ratio has remained steady, standing at around 26.3. Admittedly, this remains comparable to peers such as Colgate-Palmolive (NYSE:CL). However, if one looks at the recent history of the stock, such a multiple indicates this rally will either pause or pull back.
Interestingly, one of these less-interested buyers will be CLX itself. The company plans fewer share buybacks in this 2019 fiscal year. As a result, the company cut guidance even as the stock price has risen.
CLX Still Is a Slow Growth, Dividend Play
Moreover, for all of its successes, profit growth will remain mired in the single digits for years to come. Analysts forecast earnings increases of 1.9% for this year, and 6.5% in fiscal 2020. For this year at least, that comes in behind Colgate as well as Procter & Gamble (NYSE:PG) and Unilever (NYSE:UN, NYSE:UL).
That said, I do see a good reason for dividend investors to buy Cin January stock on a pullback. Its 40 consecutive years of dividend hikes make Clorox one of the most solid businesses in corporate America. Its $3.84 per share dividend for this year yields just over 2.3%. Clorox will produce the cash needed to fund its annual dividend hikes even when CLX stock fails to generate headlines. Still, I would urge interested investors to hold out for a lower stock price (and a higher dividend yield).
The Bottom Line on Clorox Stock
Both valuations and the increase in headlines indicate the time has come to CLX stock. To be sure, Clorox has made serious efforts to differentiate its products, boost prices and increase company efficiency. This has helped to inspire a substantial move higher in Clorox stock.
However, valuations have moved slightly above company averages. Moreover, the fact that a move higher has prompted a “should I buy” question may serve as a contrarian indicator in itself.
Clorox’s popular, recession-proof product lines will bring profit and dividend increases for years to come. As such, dividend investors should look at buying CLX stock on a pullback. However, those buying CLX in the hopes of tech stock-like increases will probably struggle.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.