Clorox (NYSE:CLX) is in the middle of a streak of several quarters of surging sales. Demand for its cleaning products skyrocketed at the start of the pandemic when companies and households prioritized disinfecting surfaces. 

Now, as its key market (the U.S.) is turning the tide against the coronavirus with millions being vaccinated daily, that surge in demand is potentially threatened. Still, there is no end in sight to the pandemic, and even though the number of people testing positive for COVID-19 is decreasing, thousands are still getting sick daily.

Given that backdrop, here is the one key metric you should know when Clorox reports fiscal 2021 third-quarter earnings on Friday, April 30.

A woman cleaning while wearing a mask.

Image source: Getty Images.

How fast is revenue growth decelerating? 

Realistically, those who are following Clorox do not expect revenue to grow at the rapid rate it has been recently. The question remains, however: How quickly will revenue decelerate from recent highs? The pandemic drove surging sales, and so the gains might reverse in the aftermath. 

In the U.S., where the company derives 85% of overall sales, trends of people getting infected, hospitalized, and dying from COVID-19 are fortunately coming down. Still, the number of people testing positive for COVID-19 remains stubbornly high. And even though continued vaccinations may bring that number down substantially, the likelihood of driving that figure near zero appears to be months away, if not a couple of years.

Meanwhile, demand for Clorox's cleaning and disinfecting products could remain elevated. To put its recent outperformance into context, the company's goal for revenue growth over the long run is from 2% to 4%. In the second quarter, revenue growth was 27%. To say that is meaningfully higher than the long-run expected trend is an understatement.

That being said, there is no guarantee that the U.S. will not experience another wave of infections. And as classrooms and businesses start to bring students and employees back in person, it could drive an increase in sales when schools and offices spend more on cleaning products. The uncertainty about the trajectory of revenue is one reason it's the most interesting metric you'll want to know in the third quarter's results. 

What this could mean for investors 

Analysts on Wall Street expect Clorox to report revenue of $1.87 billion and earnings per share of $1.48, which would be an increase of 4.7% and a decrease of 21.7%, respectively, from the same quarter last year. Even if the company hits the revenue target, it would be a significant deceleration from the previous quarter's revenue growth of 27%.

Clorox will continue to find it challenging to increase sales for the rest of the year. That's mainly because it is comparing current-year sales figures with quarters in 2020 when consumers and businesses alike stocked up on cleaning supplies.

As a result, shareholders will need to have faith in management's ability to control costs to drive profit growth from now on, as the surge in demand could start to slow. Clorox has been effective at controlling costs over the last decade, while its operating profit margin has stayed in a range of 16% to 19%.

Clorox stock is trading at 22 times forward earnings, near the lower end of its historical range. If shares pull back following the third-quarter earnings report, it could be a buying opportunity for long-term investors.  

 

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.