CLX

The Market Is Betting Big on CLX - What's the Catch?

Clorox Company (CLX) stock climbed 0.1 % this morning. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Clorox Company's valuation in the context of its poor growth indicators and mixed market sentiment, which are also strong drivers for share price.

The Clorox Company manufactures and markets consumer and professional products worldwide. The large-cap Consumer Discretionary company is based in Oakland, United States and has 8,700 full time employees.

CLX Has a Higher P/E Ratio Than the Sector Average

Compared to the Consumer Discretionary sector's average of 22.33, Clorox Company has a trailing twelve month price to earnings (P/E) ratio of 109.7 and an expected P/E ratio of 19.9. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.14 or forward earnings per share of $6.29.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Clorox Company's P/E ratio is higher than its sector average of 22.33, we can deduce that the market is overvaluing the company's earnings.

Clorox Company Is Overvalued in Terms of Expected Growth

Clorox Company's PEG ratio is 4.19. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Clorox Company's case, it tells us the company is overvalued.

CLX Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Clorox Company's P/B ratio of 70.38 is higher than its sector average of 3.12, such a margin of safety does not exist for the stock.

CLX's Weak Cash Flow Generation Is Troubling

The table below shows that Clorox Company is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Clorox Company's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 14394939734.4%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2022-08-10 786,000 -251,000 1,037,000 -35.47
2021-08-10 1,276,000 -331,000 1,607,000 -10.72
2020-08-13 1,546,000 -254,000 1,800,000 50.25
2019-08-14 992,000 -206,000 1,198,000 2.57
2018-08-14 974,000 -194,000 1,168,000 6.28
2017-08-15 868,000 -231,000 1,099,000

Clorox Company's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Clorox Company's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Clorox Company's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-08-10 7,107,000 -4,562,000 36 -18.18
2021-08-10 7,341,000 -4,142,000 44 -4.35
2020-08-13 6,721,000 -3,658,000 46 4.55
2019-08-14 6,214,000 -3,486,000 44 0.0
2018-08-14 6,124,000 -3,449,000 44 -2.22
2017-08-15 5,973,000 -3,302,000 45

Clorox Company's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-08-10 7,107,000 -1,795,000 11 -35.29
2021-08-10 7,341,000 -1,943,000 17 -10.53
2020-08-13 6,721,000 -1,789,000 19 5.56
2019-08-14 6,214,000 -1,604,000 18 -5.26
2018-08-14 6,124,000 -1,536,000 19 0.0
2017-08-15 5,973,000 -1,550,000 19

Clorox Company's cost of revenue is growing at a rate of -0.0% in contrast to -4.0% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.1 and the average operating margins growth rate is -9.3, with coefficients of variability of 8.3% and 18.2% respectively.

We See Mixed Market Signals Regarding CLX

Clorox Company has an average rating of hold and target prices ranging from $171.0 to $116.0. At its current price of $125.06, the company is trading -10.75% away from its target price of $140.13. 3.7% of the company's shares are linked to short positions, and 82.3% of the shares are owned by institutional investors.

Date Reported Holder Percentage Shares Value
2023-06-30 Vanguard Group Inc 12% 15,296,890 $1,913,029,026
2023-06-30 Blackrock Inc. 8% 9,929,208 $1,241,746,728
2023-06-30 State Street Corporation 6% 8,019,303 $1,002,894,013
2023-06-30 Geode Capital Management, LLC 2% 2,818,428 $352,472,598
2023-06-30 Stifel Financial Corporation 2% 2,136,996 $267,252,714
2023-06-30 FMR, LLC 2% 2,057,090 $257,259,670
2023-06-30 Morgan Stanley 1% 1,708,026 $213,605,727
2023-06-30 Royal Bank of Canada 1% 1,673,363 $209,270,772
2023-06-30 Wells Fargo & Company 1% 1,607,192 $200,995,427
2023-06-30 Northern Trust Corporation 1% 1,591,272 $199,004,472
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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