Shares of consumer products maker Church & Dwight (CHD 0.45%) rose a dramatic 25% or so in July according to data from S&P Global Market Intelligence. That added to earlier gains to push the stock higher by 36% through the first seven months of 2020. That's an incredible showing, given that the S&P 500 was up just about 2% over the same span. As with so many things today, Church & Dwight's stock performance is tied into the COVID-19 pandemic.
Church & Dwight is probably best known for its Arm & Hammer brand, which management has expanded well beyond its humble baking soda roots. However, as the company has pushed Arm & Hammer into new product categories, it has also expanded its portfolio of products and brand names in new areas as well. Today it sells laundry detergent, shower heads, and vitamins, among many other things. The company has long focused on creating novel products to drive growth.
As COVID-19 hit, economies around the world basically shut down, by government mandate, to slow the spread of the coronavirus. That's terrible for a lot of companies, but not so much for Church & Dwight's business, since it has a large collection of household and personal care products in its portfolio. People spending more time at home actually translated into more demand for companies like Church & Dwight. Investors weren't blind to this, with the stock handily outperforming the broader market for most of the year, even during the early-year bear market.
When the company reported earnings in late July, investors were not disappointed. Second-quarter sales were up 10.6% year over year, with adjusted earnings higher by a whopping 35%. The company even raised its full-year guidance, taking its sales growth target from 6.5% to growth between 9% and 10%. The earnings projection was upped from a target range of between 7% and 9% to a huge 13%. Investors reacted accordingly, with a big jump in the stock's price after the company reported second-quarter results.
Management noted that the second quarter was an "extraordinarily strong" one for Church & Dwight. Investors probably shouldn't expect the gangbuster numbers to continue for too long, noting that the full-year earnings guidance is well below the 35% earnings advance in the second quarter. There's no question that Church & Dwight is doing well in the face of the global pandemic and investors are rewarding it for that. However, it appears that a lot of good news is priced in here, with the stock's P/E ratio (around 33) near the highest levels it's seen in 10 years.