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Colgate-Palmolive: Avoid Despite The Drop

Jeroen Jongbloed profile picture
Jeroen Jongbloed


  • Shares in CL are down 9% since I advised against buying two months ago.
  • CL is now trading near its 52-week low.
  • The company's valuation metrics are now near their 5-year averages.
  • Still, interest and foreign exchange rate risks mean I still don't see CL as a buy.

When I last looked into Colgate-Palmolive (NYSE:CL), shares in the company were trading at $75.42, which was quite close to the 52-week high. At the time, I decided against buying shares in the company. If you'd like to read my most recent article on CL, you can find it here.

However, a lot has changed over the past two months. Shares in CL have made a significant drop after the company's most recent earnings report and are now trading at $69.27 which is less than 2% above the 52-week low of $68.19. As we can see from the graph below, this is the first opportunity in about a year to buy CL near its 52-week low.

CL data by YCharts

So, what was it about CL's earnings report that send the stock downwards, and does this present us with a good entry point?

Revenues in the fourth quarter increased by 4.6% compared to the same quarter last year. At first glance, one might be tempted to think this is great for a company the size of CL, but analysts had actually forecasted revenues to be $40 million higher.

A 4.6% increase in sales isn't too bad. In fact, it might be a reason for me to consider starting a position, if it wasn't for the fact CL's sales increase is mostly due to a depreciating dollar, rather than by selling more products.

This effect is especially visible when we look at CL's results in Europe, where the company gets 16% of its sales. Here, CL's revenues grew by 13% compared to the same quarter last year, despite pricing decreasing by 2%. However, sales volume grew by only 6%, with a 9% positive impact from currency exchange rates.

Operating profit for the European part of the company was up by 7%, which

This article was written by

Jeroen Jongbloed profile picture
I've been interested in stock investments for a couple of years now. I like companies with high, reliable earnings growth rates, low valuations and healthy balance sheets. I write about a wide variaty of companies as I look for the perfect investment.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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