Why Has Procter & Gamble’s Stock Grown 1.5x In The Past Year?

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Procter & Gamble
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Procter & Gamble’s (NYSE: PG) stock has risen from $81.91 in September 2018 to $122 in September 2019. This rise comes despite revenues and number of shares staying mostly flat, and net margins seeing a modest 4.71% increase. A 39% growth in the P/E multiple has been the key driver of this rise in P&G’s stock price.


In this dashboard, Procter & Gamble: Why has the stock grown 1.5x in the past year?, we further break down the reasons behind this rise.

We break down the change in P&G’s stock into 4 factors: Stock Price = (Revenue x Margins / No. of Shares) x P/E Multiple

P&G’s $850 million YoY revenue growth for 2019, has been driven by growth in the beauty, health care, and fabric & home care segments

  • Total Revenue has grown from $66.83 billion in 2018 to $67.68 billion in 2019, a 1.3% YoY increase.
  • This growth can be attributed to an increase in selling prices and a steady demand growth in emerging markets.
  • After shedding over 100 underperforming brands and reinventing its supply chain in the last 5 years, P&G is finally seeing some consistency across all segments.

How has P&G’s P/E multiple changed and how does it compare to that of its peers?

  • P&G’s P/E multiple has jumped from 19.41x in 2018 to 27x in 2019, on the back of strong organic sales growth and steady demand growth in emerging markets, which has raised revenue growth expectations even further.
  • Net Margins, too, are expected to keep getting better, despite foreign exchange pressure, with the company’s aggressive cost-cutting initiatives.
  • Over the same period, P&G’s primary competitors haven’t seen any such jump in P/E ratio.
  • Colgate Palmolive’s P/E multiple has grown slightly from 25.41 to 26.98, whereas Unilever’s P/E multiple has in fact dropped from 21.13 to 15.14 over the same period.

Net Margins grew from 16.8% in 2018 to 17.5% in 2019

  • Net Income Margin rose 4.71% YoY
  • P&G has been seeing higher margins on most products, amidst an increase in selling prices.
  • P&G’s successful cost-cutting initiatives have also been a positive.

 

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