Over the past six months, WD-40’s stock price fell to $213.93. Shareholders have lost 11.7% of their capital, which is disappointing considering the S&P 500 has climbed by 10.8%. This may have investors wondering how to approach the situation.
Following the drawdown, is now an opportune 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. Elite Gross Margin Powers Best-In-Class Business Model
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.
WD-40 has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 55.4% gross margin over the last two years. That means WD-40 only paid its suppliers $44.62 for every $100 in revenue.
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 26.3%, 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:
Fewer Distribution Channels Limit Its Ceiling
With $674.7 million in revenue over the past 12 months, WD-40 is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
Final Judgment
WD-40’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 36.2× forward P/E (or $213.93 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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