Yahoo Finance Procter & Gamble Stock Up 21% YTD: Should You Stay Invested or Exit?
The Procter & Gamble Company PG, also known as P&G, has displayed a robust graph, reflecting the continued rise in its share price in the past few months. The PG stock’s momentum is attributed to the success of its strategy focusing on sustainability and adaptability, responding to the evolving demands of consumers, customers and society. It has been focused on productivity and cost-saving plans to boost margins.
In the year-to-date period, the company’s shares have rallied 21%, surpassing the broader Zacks Consumer Staples sector and the S&P 500 index’s rise of 10.4% and 17.9%, respectively.
Shares of this Cincinnati, OH-based consumer goods company created new 52-high marks more than three times in less than three months.
The current share price of $177.24 reflects a 0.4% discount to its recent 52-week high mark of $177.94. Also, the PG stock reflects a 25.3% premium from its 52-week low of $141.45.
P&G's Price Performance
Image Source: Zacks Investment Research
PG is trading above its 50 and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in PG’s financial health and prospects.
P&G Stock Trades Above 50 and 200-Day Moving Average
Image Source: Zacks Investment Research
Strategies Support PG’s Rally
P&G is a stalwart in the consumer goods industry, with a comprehensive business model and operations in more than 180 countries. PG features a diverse portfolio of brands in categories like home care, personal care and health care. Its strong brand loyalty enables it to command premium pricing, sustain market share and compete effectively, reinforcing its market leadership.
The stock’s upward trajectory is well-supported by its stringent focus on productivity and cost-saving plans to boost margins. Continued investments in the business, alongside efforts to offset macro cost headwinds and balance top and bottom-line growth, underscore its productivity efforts. The company is focusing on achieving significant cost savings in its operations.
For fiscal 2024, PG delivered strong cost savings and is exploring more opportunities to save as it continues to develop its three-year rolling productivity master plans. The goal is to achieve up to $1.5 billion in gross savings in the cost of goods sold before tax in the next three years. The execution of this target is supported by its platform programs with global applications across key categories such as "Supply Chains 3.0," which involves modernizing and optimizing supply-chain operations.
Also, collaboration with retailers enables identifying more comprehensive and effective savings opportunities. The company uses digital tools to improve fill rates, and optimize dynamic routing and sourcing. These technological advancements are expected to create saving opportunities of $200-$300 million, with a target to reduce overhead costs and improve the effectiveness of its marketing efforts.
PG Falls Short of Industry Peers
Shares of Procter & Gamble have shown a steady year-to-date rise. However, a close study of the stock performance reveals that it has underperformed the industry in this period. Notably, the PG stock has risen 21% year to date compared with the industry’s rally of 23.4%.
The PG stock has also underperformed its peers like Colgate-Palmolive CL and Unilever UL, which recorded gains of 32.3% and 35.3%, respectively, in the year-to-date period.
PG Vs Peers
Image Source: Zacks Investment Research
Obstacles in P&G’s Global Strategy
Unlike its peers, Procter & Gamble faces soft trends in certain international markets, including market issues in Greater China, challenging macroeconomic conditions, geopolitical tensions across various regions and substantial financial impacts of currency volatility.
The company continues to face weak market conditions in Greater China, its second-largest market, due to unfavorable macroeconomic conditions that dampened consumer spending trends in the region. Brand-specific issues with its flagship beauty brand, SK-II, linked to its Japanese heritage, is another headwind. Backed by these challenges, organic sales in the region fell 8% year over year in the fourth quarter, with a 9% decline for fiscal 2024.
In the fiscal fourth quarter, sluggish sales were led by weak market conditions, contributing to a significant drop during the key 6/18 shopping period, mirroring earlier declines during Chinese New Year and Valentine’s Day. While P&G expects gradual improvement in market trends and SK-II performance, it does not anticipate a return to growth in the region or for SK-II for at least another quarter or two.
P&G is also experiencing soft volume trends in several enterprise markets across Europe, and the Asia Pacific, Middle East and Africa regions, including Egypt, Saudi Arabia, Turkey, Indonesia, Malaysia and Russia. These markets have been particularly affected by geopolitical tensions, reducing consumer spending and slowing retail activity. Ongoing boycotts of Western brands in the Middle East pose further challenges.
The company is also grappling with currency volatility and rising commodity costs. P&G projects significant after-tax impacts of $200 million from foreign exchange fluctuations and $300 million from commodity cost pressures in fiscal 2025.
PG’s Premium Valuation
P&G is currently trading at a forward 12-month P/E multiple of 25.06X, exceeding the industry average of 23.89X and the S&P 500’s average of 21.45X. Currently, the PG stock’s valuation seems pricey. The stock also trades at a premium to Clorox CLX, which trades at a forward 12-month P/E of 24.75X.
Image Source: Zacks Investment Research
Investors could face significant downside risks if the company's future performance does not meet expectations. The consumer goods market is becoming increasingly competitive, and PG's innovation and market expansion may not be enough to drive significant growth. Economic headwinds and increased competition could hinder the company’s ability to maintain its current growth trajectory.
Is it Prudent to Buy the PG Stock?
While P&G has achieved new highs in its recent stock performance, prospective investors should exercise caution. The company's strong market position, focus on productivity and cost-saving initiatives offer a promising outlook. Its extensive global presence and diverse brand portfolio provide a stable revenue foundation. However, challenges in key markets like Greater China and geopolitical tensions in emerging regions create significant headwinds.
Given the stock’s high valuation and recent rally, investors might be cautious about entering at the current levels, suggesting higher risks. For existing shareholders, holding on to this Zacks Rank #3 (Hold) stock could be a wise decision, given its strong long-term potential.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Unilever PLC (UL) : Free Stock Analysis Report
Procter & Gamble Company (The) (PG) : Free Stock Analysis Report
Colgate-Palmolive Company (CL) : Free Stock Analysis Report
The Clorox Company (CLX) : Free Stock Analysis Report
