Which Household Product Stock Presents the Most Upside?

WD-40 (NASDAQ: WDFC  ) and Church & Dwight (NYSE: CHD  ) have been top-performing household product stocks over the last few years. Yet strangely, when you consider growth and valuation both fall short from matching the upside of another industry competitor.

Impressive quarter and an outperforming stock
WD-40's fourth quarter earnings report on Oct. 17 was quite impressive. The company sells Lava hand cleaner, Carpet Fresh cleaner, and of course WD-40 among other brands. It posted net revenue of $93.5 million which was a 10% gain year over year .

It is quite impressive for a household product company to experience double-digit revenue growth. While net income did decline 9% in the quarter, the company's 12% rise in net income for its fiscal year represents an increase in overall margins .

Currently, the Americas remain WD-40's largest segment, providing 50% of total revenue. However, Europe, Middle East, and Africa is producing the greatest growth -- 25% in the fourth quarter which accounted for 38% of total revenue . It is this particular segment that has been the growth driver, which has many believing that total sales could continue to see high single-digit growth next year.

The problem for WD-40 is that after revenue growth of roughly 20% over the last four years, its stock has surged 120%, thus increasing its premium. Currently, WD-40 trades at 2.88 times sales and 27.5 times earnings. Clearly, both metrics are above S&P 500 averages and are higher than what's typically seen with household product stocks.

A slightly better option, but still pricey
Church & Dwight
(NYSE: CHD  ) is another household product company that is a bit more diverse with eight total brands. Arm & Hammer, Orajel, and Trojan are just three of those brands. Church & Dwight has also performed exceptionally well over the last few years.

In particular, during its last quarter the company delivered sales growth of 13.1%. It also expects annual growth in the high single to low double digits. For the fourth consecutive quarter Church & Dwight delivered 100 plus basis point gross margin expansion that shows that its business is improving in efficiency .

In terms of valuation, it trades at 24 times earnings and 2.79 times sales. Clearly, Church & Dwight is not only a cheaper stock but it is growing just as fast as WD-40. This likely makes Church & Dwight a better investment option.

A far superior value
After a whopping 15% decline on Oct. 16, there aren't too many people who are bullish on Stanley Black & Decker (NYSE: SWK  ) . Yet, the company's long-term growth remains intact and it is now without question the cheapest of the household product companies.

The company is a bit different, operating in construction, industrial, and the security businesses, but it still sells products found throughout the home. Last week it saw large losses after lowering full-year organic growth guidance from 4%-5% to 3 %. In comparison, 3% organic growth is consistent with those of both Church & Dwight and WD-40.

In fact, Stanley Black & Decker's third quarter organic growth of 4% translated to overall revenue gains of 10% year over year. The company then saw gains in volume, pricing, and acquisitions but saw a 1% decline in currency exchange .

Overall, Stanley Black & Decker's quarter was not that bad. The losses came as a result of overpromising and under delivering, yet the fundamentals are still nice and expectations have since been lowered. The company has an operating margin of 11% but it had guided for margin gains to eventually reach the high teens. While the company still looks far from reaching this goal, investors should feel confident that growth and margin improvements will continue long term.

Final thoughts
For the most part, P/E ratios over 20 and price/sale ratios over 2.5 are the norm for this particular space. Both Church & Dwight and WD-40 are on the high end with multiples that exceed the industry average. However, both companies have greater than average growth so they are awarded with higher premiums.

Stanley Black & Decker also has above-average growth but it trades at just 13.25 times earnings and 1.1 times sales. Thus, it is cheap and it is valued incorrectly in a space that has become a safe haven for many investors. With that said, you have to like the opportunity that has presented itself with this particular company. Not only is it the cheapest, but it pays a dividend of 2.6% annually versus 1.77% for both of its noted competitors. For this reason, you might want to ignore the recent loss, use it as a value presenting opportunity and dig deeper into Stanley Black & Decker.

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