There aren't many stocks valued over $1 trillion, and members of this exclusive club tend to compete exclusively in the high-growth tech industry. That's where investors' enthusiasm is most elevated around the fantastic earnings outlook for Wall Street favorites like Apple and Meta Platforms.
Procter & Gamble (PG -0.78%), also known as P&G, might just sneak up on these popular stocks over the next several years. After all, the consumer staples giant is among the highest-valued companies on the planet that operates outside of the tech niche.
But it would be a hard climb for P&G to cross $1 trillion in the seven years that end in 2030. Let's take a closer look.
The $1 trillion math is hard
P&G shares are currently trading at $370 billion, which makes it the 8th-most-valuable company on the list of 30 stocks in the Dow Jones Industrial Average. Microsoft and Apple top the list now with each stock trading at nearly $3 trillion in market capitalization in early 2024.
For P&G to reach $1 trillion, it would need to nearly triple its value, rising 170% between now and 2030. Just how reasonable is this growth path?
It seems unlikely but not impossible. For context, the stock has gained about 100% in the previous 10 years while the wider Dow was up 140%. P&G would need to expand at a compound annual growth rate (CAGR) of just under 16% for the next seven years, which is a tall order for a consumer staples giant competing in an industry that tends to grow in the mid-single digits each year.
Some context improves the odds
If we include dividends, the picture becomes brighter. P&G's total returns, which account for its rising dividend payments, landed at 170% over the past decade.
Sure, a 10-year period is significantly longer than a seven-year period, and these are shareholder returns we're talking about, not market capitalization. Still, it isn't out of the question to think that P&G could give shareholders something close to a 150% return between now and 2030.
A lot will depend on how well the business performs in the coming years. P&G said in late January that organic sales were up 4% year over year in the most recent quarter, keeping it on track to post the same level of growth for the full 2024 period. That's a slower expansion than investors have seen in the past few years, although earnings are rising at a faster clip, thanks to price increases. It's reasonable to assume that the consumer staples leader can continue outgrowing its industry while steadily boosting its dividend each year.
These wins might translate into about 10% annual returns, but the rest would have to come from an expanding premium for the stock. This would require P&G to boost its profit margins above the rate that investors are used to seeing from this business.
Operating income is moving in the right direction, rising to 24% most recently, compared to around 20% in the pre-pandemic period. If P&G can further improve its profitability -- say, to the high 20% range -- then the stock should see higher returns over time.
Hitting $1 trillion isn't the main goal
Investors shouldn't get too caught up in whether P&G can hit a certain market-cap milestone. Follow core sales and earnings trends, instead, as successes here will allow stock returns to take care of themselves.
The company is more likely to give shareholders steady returns in the low-double-digit range through a combination of capital gains and dividend income, without some of the volatility associated with tech specialists. Consider putting this blue-chip giant on your watch list, even if it may be a decade or more before it reaches a $1 trillion market cap.
