Colgate-Palmolive (CL)

Fundamental analysis of Colgate-Palmolive (CL).

Update, December 01, 2017:

At almost 27 times 2016 earnings, Colgate Palmolive is still expensive. If current trends continue, the company will approximately make $2.55 for 2017 which gives a forward P/E ratio of 28.4.

Because the company has a lot of intangible assets its book value is negative which makes for a difficult Price to book valuation. Colgate’s cash flow yield is 4 per cent which is in line with its competitors.

The stock is still too expensive for my taste.

Description:

Colgate-Palmolive is an American consumer products manufacturer with a global business. It is based in New York City, New York.

Valuation:

The company is expensive at 27 times last year’s earnings. Looking at the past three years’ earnings it is even more expensive at 33 times average earnings.

Because the company has a lot of intangible assets – which are supposed to be subtracted from the equity when calculating the book value – the book value is very low and even negative.

Therefore it does not make sense to calculate a Price to Book value ratio.

Balance sheet:

Colgate-Palmolive has a working capital of $1 billion which is a lot of cash in the bank.

When looking at the Balance sheet in detail it becomes apparent that their liabilities are almost as great as their assets and that the equity portion is very low.

Nevertheless, people seem quite happy to pay for their ability to make money out of the equity.

Cash flow and dividend:

The company had a Free cash flow last year of $2.5 billion which equates to $2.84 per share. Of this they are paying out a dividend of $1.50 which equates to 2.1 per cent.

Colgate-Palmolive is also involved in buying back shares which in general makes the shareholders who are selling their shares richer.

The company is a part of the Dividend aristocrats which have a history of paying out uninterrupted and increasing dividends for at least 25 years.

Conclusion:

At these prices I would not be buyer of Colgate-Palmolive. For me to be interested prices would need to fall by at least 50 per cent.

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