The name Clorox (CLX -0.35%) is beyond well known; it is iconic and virtually synonymous with bleach. However, the company has expanded well beyond that one category.

That's good news, but Clorox is still dealing with the decline of enhanced cleaning driven by the pandemic, a negative trend compounded by raging inflation. That is why the stock has fallen roughly 36% since early 2020.

A tempting value

The consumer staples giant is currently offering investors a generous yield of 3.2% or so. That's toward the high end of the company's historical dividend yield range. The company, notably, has increased its dividend annually for over 45 consecutive years, making it a Dividend Aristocrat. Put all of this together, and it looks like Clorox's stock has been put on the sale rack.

A person looking at a laptop and raising arms as if frustrated.

Image source: Getty Images.

That's actually not unreasonable, however, for two reasons.

First, the peak in 2020 coincided with a demand spike for cleaning products. Since Clorox makes such products, investors perhaps got a little irrational in their desire to own it when COVID-19 was new. The world has, by and large, learned to cope with the virus since then, and demand for cleaning supplies has predictably fallen off. 

Even Clorox expected that to happen, which was why management chose to use contract suppliers to handle the huge demand spike instead of building new plants. As demand waned, Clorox has been exiting these contracts. However, sales of the company's cleaning products are still not looking too good.

On top of that, inflation has been raging. That pushes up Clorox's costs for everything from ingredients to labor to transportation. It is working to pass these rising costs on to consumers, but as is typical in the consumer products space, there's a time lag that leaves margins falling over the short term.

Put these two facts together, and Clorox has both falling sales and falling margins. No wonder investors are in a negative mood.

Working on it

Clorox isn't ignorant to the headwinds it faces. As noted above, it was ahead of the curve on the cleaning demand surge. And it is pushing through price hikes. It will simply take time for the company to build back margins.

Investors with a short-term focus just aren't willing to wait for this iconic company to get back on track. For investors that think in decades, however, the historically high yield should probably be seen as a buying opportunity.

What's notable is that Clorox is a far more diverse company than its name might imply. Yes, it owns its namesake brand, and that brand is very important. But it also owns Kingsford charcoal, Hidden Valley dressings, Burt's Bees lip balm, Fresh Step cat litter, Brita water filters, and Glad plastic bags, among many others. Clorox is a brand powerhouse with the reach and scale to be a vital partner with retailers, using advertising and innovation to drive store traffic. 

Weakness in one, admittedly important, product category isn't going to upend the entire company. And most of these products are modestly priced items bought regularly, so there's some sticking power that should help the company get through to better days. When you step back and look at the big picture, it seems more like a business recovery is just a matter of time even though investors are pricing the stock like it won't be able to rebuild its currently depressed margins back toward more historical norms.

Time arbitrage

Wall Street is impatient, which puts a great deal of pressure on professional investors. That's great for smaller investors who don't have to make sure their quarterly performance is at the top of the pack. Simply put, you can invest in an out-of-favor name like Clorox and sit tight, happily collecting big dividends, until management figures out how to solve the near-term problems that have Wall Street up in arms.