Shares of Clorox (CLX -0.69%) hit a high water mark in 2020 during the coronavirus pandemic. Since that point, the stock has crashed, at one point falling around 45% or so. Although the shares have started to climb out of that hole, they are still down around 30%. And yet management is executing well on its recovery plan, which is a sign that investors may want to buy the stock.
Clorox was well-positioned -- until it wasn't
The big news of 2020 was the coronavirus pandemic. Most companies got trampled as investors ran for the hills, causing a bear market. Some, however, had products that were seen as potentially benefiting from the fast-spreading illness. Clorox's cleaning supplies made it just such a company.
In that calendar year, the consumer staple maker's stock rose around 30% compared to a gain of roughly 16% for the broader market. But the real shocker was that Clorox basically rose throughout the swift bear market early in the year. But the excitement actually peaked within the year, with the stock hitting its high-water mark in the third quarter.
To make matters worse, when demand for cleaning products cooled off, inflation and supply chain issues came to the fore. That resulted in a huge hit to the company's margins. There was no easy fix. Management went to the traditional playbook of cost-cutting and price increases but warned investors that this would be a multi-year turnaround effort. Worried shareholders exited the stock, and many are still avoiding it.
But if you look at recent financial results, management is, slowly, getting the business back to prior form. For long-term investors, that's probably a sign that buying Clorox is a good idea.
A big change took place in fiscal 2023
Fiscal 2023 just ended for Clorox, and it is instructive to look at the progress the company made over the 12-month span. For example, in the fiscal first quarter, sales fell 4%, continuing the weakness seen in fiscal 2022. But sales over the next three quarters rose sequentially, going from an increase of 1% to 6% to 12%. There are always puts and takes, but it is pretty obvious that Clorox is operating from a stronger position now than when it started fiscal 2023.
CLX Gross Profit Margin data by YCharts
The gross margin in the fiscal first quarter of 2023 was 36%. By the second quarter, that figure had improved to 36.2%, followed by 41.8% and 42.7% in the third and fourth quarters, respectively. This is exactly what management said would happen, broadly speaking.
In other words, Clorox is deftly on its way back to pre-pandemic levels of operating performance. It wouldn't be fair to suggest that it will be a straightforward upward climb from here. However, it is hard to deny that Clorox is turning its business around.
Not getting the credit it deserves
The stock has come back from recent lows, so investors appear aware that the worst is likely behind the company. And the peak in 2020 was probably a bit irrational, based more on investor sentiment than on actual financial results. However, the nearly 3% dividend yield on offer from Clorox is still historically attractive, particularly given the over 45 years of annual increases under the company's belt.
Clorox stock isn't as attractively priced as it was, but dividend investors with a long-term mindset still have very good reasons to jump aboard today. The biggest is probably the fact that management is doing exactly what it said it would do.
