Church & Dwight Co Stock Is Estimated To Be Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Church & Dwight Co (NYSE:CHD, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $87.31 per share and the market cap of $21.4 billion, Church & Dwight Co stock is believed to be fairly valued. GF Value for Church & Dwight Co is shown in the chart below.


Church & Dwight Co Stock Is Estimated To Be Fairly Valued
Church & Dwight Co Stock Is Estimated To Be Fairly Valued

Because Church & Dwight Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.6% over the past three years and is estimated to grow 6.79% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Church & Dwight Co has a cash-to-debt ratio of 0.09, which is worse than 82% of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of Church & Dwight Co at 5 out of 10, which indicates that the financial strength of Church & Dwight Co is fair. This is the debt and cash of Church & Dwight Co over the past years:

Church & Dwight Co Stock Is Estimated To Be Fairly Valued
Church & Dwight Co Stock Is Estimated To Be Fairly Valued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Church & Dwight Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.9 billion and earnings of $3.11 a share. Its operating margin is 21.03%, which ranks better than 92% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Church & Dwight Co is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Church & Dwight Co over the past years:

Church & Dwight Co Stock Is Estimated To Be Fairly Valued
Church & Dwight Co Stock Is Estimated To Be Fairly Valued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Church & Dwight Co's 3-year average revenue growth rate is better than 75% of the companies in the industry of Consumer Packaged Goods. Church & Dwight Co's 3-year average EBITDA growth rate is 12.6%, which ranks better than 69% of the companies in the industry of Consumer Packaged Goods.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Church & Dwight Co's return on invested capital is 13.59, and its cost of capital is 4.20. The historical ROIC vs WACC comparison of Church & Dwight Co is shown below:

Church & Dwight Co Stock Is Estimated To Be Fairly Valued
Church & Dwight Co Stock Is Estimated To Be Fairly Valued

In summary, the stock of Church & Dwight Co (NYSE:CHD, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 69% of the companies in the industry of Consumer Packaged Goods. To learn more about Church & Dwight Co stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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