Friday 14 March 2014

Analysis of Procter & Gamble

An American consumer products company

Company: Procter & Gamble

Business: An American consumer products company. They are divided into four divisions: Global Beauty (Hugo Boss, Olay, Head & Shoulders, Pantene, Mexx, Wella ect.), Global Baby & Feminine & Family Care (Always, Tampax, Pampers, Naturella etc.), Global Fabric & Home Care (Mr. Clean, Ariel, Duracell, Ace, Tide etc.) and finally Global Health & Grooming (Gillette, Braun, Oral-B, Vicks, etc.). For a more complete list of brands please look here.

Active: They are active world wide selling their products in over 180 countries and serving 4.6 billion consumers according to themselves.

P/E: 20.3

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of Procter & Gamble is out of my league with 20.3 and the P/B also with 3.3 which means that Graham would also have said no to it. The earnings to sales are fully acceptable with 13% and the ROE is ok with 16.5%. The book to debt ratio is also ok with 1.0. In the last five years they have had a yearly growth of 1.3% which is pretty bad and this then gives us a motivated P/E of 9 to 12 which means that P&G is today overvalued by the market. They pay a fully acceptable dividend of 2.9% which represents 60% of their earnings so still possible to at least keep it there. They also brag on their investor homepage that they have increased the dividend for 57 consecutive years which is indeed impressive and probably also part of the reason for why they are so highly valued today.

Conclusion: P&G is simply put not cheap to buy into today. It is a great company with an excellent product/brands portfolio that will keep generating a high revenue and profit for many years to come. However neither Graham or I find it of interest to step into this company today with its high P/E and especially in comparison to the weak growth they have shown in the last couple of years.

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