Is Procter & Gamble Co (NYSE:PG) Overvalued?

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Procter & Gamble Co (NYSE:PG) growth pace seems to have taken a step back over the past three years. Tapered growth comes even as the company continues to work on a turnaround process that seeks to reinvigorate growth. However, as other stocks experienced one of the worst starts to a year, the consumer good remained resilient, a point of concern to the investment community.

With the stock closing in on its 52-week high, investors are starting to question whether the stock is overvalued given the company’s shaky fundamentals.

Shaky Fundamentals

Procter & Gamble Co (NYSE:PG) turnaround is almost over and given the impact of a strong dollar in the recent past; many are starting to question its long-term prospects. A point of concern to the street is that the stock is valued as if there are catalysts that could catapult it above its 52-week high of $82.41.

Concerns over troubling sales and slow outlook against a strong dollar are starting to affect investor sentiments on the stock. CEO, Jon Moeller admitting that the company faces an unprecedented future in developed markets amidst a challenging marketing environment further arouses doubts about Procter & Gamble Co (NYSE:PG) future.

Expected Divestiture Impact

Given the concerns, the stock continues to trade as if everything is going well and that the company is just starting on its turnaround process. The company has already divested its Duracell business split its beauty brands as part of an effort that seeks to slim operations from 115 brands to just 65.

Even on the divestiture of non-core brands and changes to corporate management, the stock has remained stagnant. Growth has eased and with a lack of immediate catalyst, it is highly unlikely the stock could trade much higher from the current levels. Procter trading at highs of $82.41 a share continues to evoke valuation concerns given that the minimal impact of the changes initiated in the recent past.

The big question now is how Procter & Gamble Co (NYSE:PG) will look like going forward, given the ongoing weakness in its empire. Skepticism about the impact of divestitures and secular challenges in the market should continue to elicit questions about its prospects.

Divestiture of some of the brands was expected to result in a fast growing company as focus shifts to high-growth business. That has not been the case; in fact, Procter Gamble seems to be losing market share on some its brands. That should not be the case of a company whose valuation investors expect to improve over time.

Challenging Marketing Environment

Over the years, Procter & Gamble Co (NYSE:PG) has recorded impressive sales thanks to strong consumer demand. However, sentiments in the industry are slowly changing with consumers now increasingly going for smaller brands at the expense of what the big boys are selling. The consumer goods titan highest margin business has registered volume sales decline in the last two fiscal years further affirming doubts about its prospects going forward.

Large brands no longer have the edge they used to boast of in the past the marketplace having significantly evolved. The current competitive environment means Procter & Gamble Co (NYSE:PG) will find it difficult to register any form of growth in its core brands.

Bottom Line

Investors have until now remained patient, failing to question the stock’s valuation even as Procter & Gamble Co (NYSE:PG) continues to miss guidance quarter after quarter. With the market waiting for material impact of the divestitures, things could turn sour if the outcome is negative.

Given that the stock is trading close to its 52-week high it would be right to assume that the stock is overvalued. Investors starting to question the impact of the turnaround process initiated two years ago could be the genesis of the stock’s woes on the valuation front.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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