WDFC: WD 40 Company (Maker of WD-40 Lubricant)
Maker of household product WD-40 lubricant. Also, they make specialty chemicals to help with maintenance, cleaning, and household tasks.
Recent Range: $24/share – $41/share (Current Price: 41.08, as of close of 12/17/10)
Price/Sales (P/S) = 7.89 (5.55, Industry)
Price/Book (P/B) = 3.49 (2.85)
Gross Margin = 51.4% (29.5%)
Pre-Tax Margin = 16.7% (-17.5%)
Debt/Equity Ratio = 0.11 (0.93)
Current Ratio = 2.5% (2.2%)
Return on Equity = 19.5% (14.7%)
Return on Assets = 13.1% (8.1%)
Analysis: This company appears to be in excellent health; however, the stock does not seem like an obvious bargain, even though this seems to be somewhat of a hot stock right now.
The business has about 80% of the market share. Their product is not a lot different from its competition, but it has the benefit of brilliant branding in the past. Nearly EVERYONE knows what WD-40 is. Not many people can even list its competitor. In fact, many people use the terms “lubricant” and “WD-40” interchangeably.
The company recently increased its dividend. It pays around 2.7%, but the upward trend is usually very encouraging. Truthfully, for an established company the dividend is pretty generous.
They have plenty of cash, and they have a ton of profits, buoyed by their brand recognition. They can afford to charge more than their competitors since everyone knows about them instead of their competition. The company seems to handle their money well.
Sales are expected to increase in 2011.
The company just launched Blue Works, which could really help sales or drag down the bottom line, a little. It does indicate that the company has an active Research and Development (R&D) area, meaning that it understands the value of investing in its future. It has the resources to do it, too.
The price seems to be expensive relative to its historical range, but that is a little misleading. The company seems to be doing so well that it does not seem like its stock price will dip a whole lot anytime soon.
So why am I lukewarm on this stock?
The price per book (P/B) seems to be about the right amount higher than its competition. The stock price seems like it will increase, but it is not clear how much. It does not seem like it will rise enough over today’s price for me to get excited about it.
Mostly, it is not clear to me what the logical “top” price it will reach. The books seem to support today’s price. Higher prices just seem like they are most likely driven by public euphoria to recent news.
Long term, I’m never of big fan of a competitive moat simply being the brand name being the most recognizable. Then again, it has worked for Coca Cola for decades, but WD-40 is not anywhere nearly as addictive to the mainstream buyer.
If you buy this stock, you will not go bankrupt anytime soon. This company is just too good and is in too good of financial health. I just don’t feel comfortable recommending this stock saying that it will make a huge price gain, either.
It’s a classic case of a great company with stock just priced OK.
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