Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
At the time of this writing, Colgate-Palmolive (CL) has a P/E of 20.69 at the price of $103.65. It is a great stock to own if only its price could be lower than its current one right now. Still, it can go higher than its current levels, and you might miss out on the dividend or capital gains, whichever is your target in the first place. For hardcore value investors, though, the stock price is somewhat expensive. Of course, it's still your call whether you want to get in right now or wait until later for the price to drop and target something else in the meantime.
For those who buy stock primarily for dividends, this is one to own because of its inherent defensive capabilities. However, when you look at the fundamentals, the picture indicates that the company is not without its weak spots. You can get the source figures from Google finance.
Innovative Segmenting by Colgate
Colgate has been able to extend their product range from their flagship toothpaste to toothbrushes, mouthwashes and tooth whitening. The result is an impressive 80% of the market share compared to its rival Procter & Gamble (PG). Of course, it certainly helped that the company devoted a huge chunk of their R&D budget for Colgate India in order to boost their defensive position and grow as well.
P&G's Response
P&G is said to have allocated generous budgets for their R&D as well but they have failed in several product attempts on countries like India several years ago. Because of this, P&G has been trying to use predictive analytics in order to understand their consumers more and derive certain insights that can gain them a lot of advantages in the marketplace. The only problem is, there seems to be no distinct and noticeable edge over their rival as of now.
If you are an investor, it would ultimately come down to your own investing style as to which company would look better in your portfolio.
Financial Standing of Both Companies…
The return on assets is decent in its category, while the current ratio is very near the borderline of what can be considered good. The current ratio is acceptable, depending on what angle you are looking at, but it is somewhat too close for comfort. We would prefer finding a company with a higher current ratio to ensure we are only selecting the best possible stock for your portfolios. We do not say not to buy CL, but rather, there are better options if you have limited resources to invest.
The above two metrics might seem to be acceptable to a certain extent, but the debt levels tells of the major weakness of CL as an investment. The company provides a decent dividend of around 3% but it certainly could be better. There are simply several stocks out there to own that has superior fundamentals and a higher dividend rate than this one. We are not saying that it is a bad choice for any investor, it's just that you could turn your attention to something else better. All tables shown below are compared with Procter & Gamble to provide a suitable benchmark for consumer goods companies.
Colgate Return on Assets
2011 2010 2009 2008
Net Income 2431 2203 2291 1957
Asset 12724 11172 11134 9979
ROA 19.11% 19.72% 20.58% 19.61%
PG Return on Assets
2011 2010 2009 2008
Net Income 11797 12736 13436 12075
Asset 138354 128172 134833 143992
ROA 8.53% 9.94% 9.96% 8.39%
Colgate clearly has the lead in terms of ROA superiority, although they are smaller in terms of the market size they are occupying. Although it is PG that has a bigger market capitalization, CL is the one with better capacity to generate revenues.
Colgate Current Ratio
2011 2010 2009 2008
Current Assets 4402 3730 3810 3710
Current Liabilities 3716 3728 3599 2953
Current Ratio 1.18 1.00 1.06 1.26
PG Current Ratio
2011 2010 2009 2008
Current Assets 21970 18782 21905 24515
Current Liabilities 27293 24282 30901 30958
Current Ratio 0.80 0.77 0.71 0.79
Again, Colgate has the lead when it comes to better management of liabilities and capital. PG could certainly use a lot of improvements in this area as well.
Colgate Debt/Equity Ratio
2011 2010 2009 2008
Total Debt 4810 3424 3182 3783
Equity 2375 2675 3116 1922
Debt/Equity Ratio 2.03 1.28 1.02 1.97
PG Debt/Equity Ratio
2011 2010 2009 2008
Total Debt 32014 29832 36972 36665
Equity 67640 61115 63099 69494
Debt/Equity Ratio 0.47 0.49 0.59 0.53
This is the sole area where Procter & Gamble trumps Colgate, as PG is not risky compared to Colgate's debt position. The balance sheet of PG that has a lower debt balance also means the company isn't paying as much interest to loans like that of Colgate. It presents a mixed situation, obviously, but if you want a faster growth and earnings company, that will be Colgate. If you are worrying about any potential debt servicing and slowdown in revenues, then PG is the one that will be able to withstand the most damage to its organization, because they are not carrying as much debt as Colgate. PG debt levels are at least four times lower than Colgate in terms of ratio, and would present a very solid aspect of investment for any cautious investor


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