Time to Pare Back PG Stock

With the fluctuating economic growth the U.S. has seen over the past year, many investors have chosen to move to the perceived safety of consumer staple stocks such as Procter & Gamble (PG), Colgate-Palmolive (CL) and Altria (MO). This has not necessarily been a bad move with many consumer staple focused indexes and exchange-traded funds up double digits over the past year. If you look in a dictionary under consumer staples you will probably find either PG or one of it many brands. PG operates in 180 countries under five segments: Beauty, Grooming, Health Care, Fabrics and Home Care and Baby, Feminine and Family Care. PG brands include Tide, Olay, Braun, Pampers and many others you see in the grocery store every day.

Over the past five years, PG annual sales have risen from $79 billion to $83 billion for the fiscal year ending June 30. That is a compounded annual growth rate of just under 1% per year. In addition to sales not growing, profits aren’t growing either. PG’s net income in 2010 was over 16% of sales, and as of the last fiscal year, net income was just over 14% of sales. Conversely PG’s stock price is up over 44% over the past five years. PG stock has significantly underperformed compared to the S&P 500 due to anemic sales growth and declining income which means all stock price appreciation must have come from multiple expansion.

Source: InvestorPlace

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