Up more than 1.3x from its low in March 2020, at the current price of $81 per share, we believe Colgate-Palmolive stock (NYSE: CL) has further upside potential. The stock has risen from $62 to $81 off its March 2020 low, much less than the S&P which increased by over 80% from its low. Further, the stock is up only around 5% from the level it was at before the pandemic. However, we believe that Colgate stock could rise around 10% to set fresh highs around $90, driven by expectations of continuing demand growth and strong Q1 2021 results. Our dashboard What Factors Drove 36% Change In Colgate-Palmolive Stock Between 2018 And Now? has the underlying numbers behind our thinking.
The stock price rise since late-2018 came due to a 6% rise in revenue from $15.5 billion in FY 2018 to $16.5 billion in FY 2020. Net margins increased from 15.4% to 16.4% over this period, and combined with a 2% drop in the outstanding share count, this led to a 14% rise in EPS from $2.76 in FY 2018 to $3.15 in FY 2020.
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Colgate’s P/E (price-to-earnings) multiple jumped from 22x in 2018 to 27x by 2020 end, and is currently a little below that level. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of coronavirus and the resulting lockdowns in early 2020 affected supply chain activities, but oral care products being essentials, demand for Colgate’s products was hardly hampered. Further, with the lockdowns being lifted in most countries, the company’s sales have been benefited further. This is evident from Colgate’s Q1 2021 earnings, where revenue came in at $4.3 billion, higher than the $4.1 billion in Q1 2020. Net margins came in roughly at the same level, but EPS dropped to $0.80 from $0.83 over this period. However, a closer look reveals that this was primarily due to a higher effective tax rate (23.9% in Q1 2021 vs 16.4% in Q1 2020).
Additionally, with manufacturing and supply chain activities stepping up to pre-pandemic levels, we believe the company will see further revenue growth in the medium term and this should boost profitability. These factors will raise investor expectations further, driving up the company’s P/E multiple. We believe that Colgate stock can rise around 10% from current levels, to levels above its recent high of $86.
While Colgate-Palmolive stock appears undervalued, it is helpful to see how its peers stack up. Check out Colgate-Palmolive Stock Comparison With Peers to see how Colgate-Palmolive compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.