Half a year ago, it was unimaginable that Clorox (NYSE:CLX) products would be so popular today that it’s hard to even find them sometimes. Yet, here we are, and Clorox stock has exhibited incredible market-beating alpha this year.
Chiefly due to the spread of the novel coronavirus, Clorox has been a “cleanup” stock in multiple senses of the word. The shareholders have cleaned up in the sense that the stock is not just at 52-week highs, but at all-time highs.
And that’s not even counting the dividend payouts, which have been consistent even during the peak of the Covid-19 crisis.
But Clorox has also been a cleanup stock in the sense of its importance in an understandably hygiene-obsessed world. Call it fate or happenstance, but the global viral pandemic made Clorox a consumer-staples superstar, all of a sudden.
And it made the usually sleepy Clorox stock a market darling in 2020. So now, the question is whether the shares are still a buy, or whether it’s time to clean up, take profits and go home.
A Closer Look at Clorox Stock
Given the breathtaking run in Clorox stock, it’s surprising that it offers a very reasonable trailing 12-month price-earnings ratio of 32.6. This metric suggests that the stock could push higher without becoming unduly stretched.
That being said, the recent price action suggests that Clorox stock may be due for some consolidation soon. Within the past year, the shares have traded as low as $144 and as high as $224. The current stock price is much closer to the peak than the trough.
After the stock’s relentless run, it would be reasonable for the bulls to take a breather. Hence, risk-averse investors might want to start taking some shares off the table if they’ve made sizable gains on Clorox stock. However, there’s nothing on the horizon to suggest that the stock’s bull run is over by any means.
Cleaner Is Better
Let’s not paint a distorted picture of Clorox here, as the company sells more than just bleach-based cleaning products. Without a doubt, the Fresh Step, Kingsford charcoal, and Liquid-Plumr brands are solid revenue generators for the company.
But let’s not kid ourselves, either. In the midst of a global pandemic, Clorox’s value proposition is all about the bleach and the disinfectant wipes. Not long ago, those items were so popular that it was difficult to find them. Even today, they’re still hard to find in some places.
Will the intense demand for cleaning products persist? That’s a valid question, which Amana Mutual Fund has evidently answered in the affirmative:
“With a double-digit return, Clorox was a true outlier in the first quarter as demand for its cleaning products, including disinfecting wipes and bleach, soared in the wake of the coronavirus pandemic. Whether this continues depends on a persistent increase in the use of these products, which we would not rule out.”
A Focus on Products
Amana’s position is reasonable as the populace’s focus on cleanliness isn’t likely to abate anytime in the near future. Moreover, Clorox’s strategy suggests that the company is serious about improving its cleaning products.
Specifically, the company plans to reduce the chemical footprint of its cleaning products. Clorox also intends to replace animal testing for its products with non-animal-based alternatives.
Additionally, Clorox’s strategy includes an increase in “the reach of the SmartLabel product information tool.” This tool is designed to provide consumers with clear and meaningful product-specific data. Therefore, it should enhance the company’s product transparency.
The Bottom Line
Even after the powerful bull move in Clorox stock, there’s still room to run and a long position is justifiable. And as long as the company’s bleach and disinfectant-wipe products are in demand, Clorox should continue to have a clean bill of health.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.