Over the past two years, Procter & Gamble (PG +0.41%) stock has nearly doubled as the company has made some major changes. It shed businesses it didn't feel were core to operations, and consolidated development and sales efforts into a more focused group of brands.
These moves have helped push organic growth higher in 2019 on impressive volume growth. In the most recent quarter, organic volume was up 4%, helping push organic sales 7% higher. As long as the economy holds up, the growth trend may continue -- and that would put P&G in a much better position a year from now for investors.
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P&G's newfound growth
In the chart below, you can see what has happened to sales at Procter & Gamble in the first half of the decade. The company sold or spun off some businesses, but core operations were stagnant at best. That's changed in the last year or two as organic growth has finally picked up.
PG Revenue (TTM) data by YCharts
Right now, the beauty, healthcare, and fabric & home business units are driving growth, with organic sales up 10%, 9%, and 8%, respectively. Expansions in greater China were particularly helpful to the healthcare and fabric & home business units, as they found the booming market receptive to branded consumer products. Around the world, consumers have money to spend on name brand consumer staples, and Procter & Gamble has benefited from that.
North America and Europe also benefited from steadily growing economies, which help drive consumer purchasing power -- reflected in the fact that nearly half of the 7% increase in organic sales have come from price increases. But those price increases may not last forever.
How P&G could fall back into a rut
P&G has really benefited from the extra spending power consumers have enjoyed in the last few years. But when the market turns south, that's when you find out how much pricing power a brand really has. That's the biggest concern for P&G in the next year: There are signs that China's economy is slowing, and an escalating trade war between the U.S. and China could turn a tailwind into a headwind.
The sales and profit margin increases over the last year have been assisted by economic growth. But with high-end consumer products, the macroeconomic risk is the biggest concern to watch in 2019. A downturn could make consumers think about trading down to cheaper products again, and could hurt more than investors expect right now.
Procter & Gamble's value
While there are risks for Procter & Gamble, I think its business is back on a solid footing, and focused on areas where it can slowly grow revenue and earnings. And with shares trading at a forward P/E ratio of 23.2, the stock isn't terribly expensive right now.
This isn't a stock I would put high expectations on, because the bounce back from lows a few years ago may be over. But the consumer staple giant is still a steady performer, and will be a stalwart in your portfolio. And its 2.5% dividend yield is as reliable as they come, which is a comfort for any investor.
