Over the last six months, WD-40’s shares have sunk to $219.12, producing a disappointing 8.1% loss - a stark contrast to the S&P 500’s 8.1% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Following the drawdown, is now a good time to buy WDFC? Find out in our full research report, it’s free.
Why Does WD-40 Spark Debate?
Short for “Water Displacement perfected on the 40th try”, WD-40 (NASDAQ: WDFC) is a renowned American consumer goods company known for its iconic and versatile spray, WD-40 Multi-Use Product.
Two Things to Like:
1. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
WD-40 has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.4% over the last two years.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
WD-40’s five-year average ROIC was 27.5%, placing it among the best consumer staples companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, WD-40’s 6.7% annualized revenue growth over the last three years was mediocre. This wasn’t a great result compared to the rest of the consumer staples sector, but there are still things to like about WD-40.
Final Judgment
WD-40’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 36.9× forward P/E (or $219.12 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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