Back in 2017, when activist billionaire investor Nelson Peltz targeted Procter & Gamble (NYSE:PG) because of its "suffocating bureaucracy," the consumer staples giant's stock had become listless, at best performing about as well as the broader market, and often performing worse.

Peltz blamed Procter & Gamble's loss of market share on a portfolio of brands that had grown too large and a business model that had grown too stale. The activist investor, as he often does, sought to shake the board out of its lethargy.

Woman brushing teeth with Oral-B brush

Investors have been smiling since Procter & Gamble began its recovery. Image source: Procter & Gamble.

Although he narrowly lost a proxy battle to gain a board seat, the consumer products company eventually offered him one anyway because, as Peltz subsequently said of both himself and P&G CEO Taylor, "We'd rather be rich than right."

Since that time, Procter & Gamble has put itself back on the road to riches. Over the past 12 months, its stock has jumped more than 28% while the S&P 500, which has been hitting record highs, is up by only 14%. But now that it has come so far, so fast, is Procter & Gamble stock still a buy.

Where it's headed

With a $300 billion valuation, P&G is a consumer products behemoth with a still-powerful portfolio of brands including Crest toothpaste, Tide laundry detergent, and Pampers diapers. It might not give tech companies a run for their money on the growth front, but its sales are steadily picking up steam again.

P&G ended fiscal 2019 with its fastest growth in over a decade, and  in the first quarter of fiscal 2020 (which ended Sept. 30) followed up with a 7% increase in sales to $17.8 billion as each of its business segments delivered organic growth. Earnings jumped 11% year over year.

Key to that success has been its focus on repairing its strength in products that are used every day, and positioning its brands to hold the No. 1 or No. 2 spot in those categories. That's particularly beneficial in that such products also tend to occupy some of the fastest-growing categories, and its solid results within them have helped P&G raise its guidance for the fiscal year.

Although it acknowledges still there could be a slowdown next year due to macroeconomic and geopolitical issues, it raised its outlook for organic sales growth from a range of 3% to 4% to one of 3% to 5%, with core earnings-per-share growth now in a range of 4% to 9% compared to its previous range of 5% to 10%.

What that growth is worth

In the wake of the past year's share price gains, now trades at more than 23 times next year's expected earnings, a price-earnings-to-growth ratio of almost 3, and more than 4 times its trailing sales. Those are far from bargain-basement ratios.

In comparison, rivals such as Kimberly Clark, Clorox, and Colgate-Palmolive typically trade at much better multiples, but their outlooks aren't nearly as good as P&G's, and their stocks have been lagging as a result. Analysts also don't expect its competitors will grow their earnings over the long term at anywhere near the rate they predict for P&G.

At this stage, it appears Procter & Gamble stock is being given a premium price because it looks like the best of the bunch, on the expectation that it could grow into its valuation.

What investors get in return

Procter & Gamble has been a prodigious dividend-payer over the years. It made its first payout in the late 1880s, and has raised its dividend annually for more than 60 years. 

In the just-completed quarter, P&G returned $4.9 billion of cash to shareholders by paying out $1.9 billion in dividends and buying back $3 billion worth of its stock. It expects to return as much as $15.5 billion of cash to shareholders in fiscal 2020, with over $7.5 billion in dividends and between $6 billion to $8 billion of stock repurchases.

The verdict

Investors would definitely have to pay a premium for the privilege of adding Procter & Gamble shares to their portfolios now, but because its turnaround is well underway and its management has a clear strategy on how to grow the business, this consumer products company ought to be on many investors' shopping lists.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.