Shares of WD-40 Company (WDFC 0.69%) dropped 10.7% in April, according to data provided by S&P Global Market Intelligence. And I admit that the downward move is a head-scratcher. If someone would have asked me, I would have guessed the stock would have gone up during the month because it raised its financial guidance.
On April 8, WD-40 reported financial results for its fiscal second quarter of 2024 (the period that ended Feb. 29). The company's financial results were about what investors had expected. But for the year, management raised its guidance for its earnings per share (EPS).
NASDAQ: WDFC
Key Data Points
Previously, WD-40's management had expected EPS of $4.78 to $5.15. But after its Q2 report, it raised its full-year EPS sguidance to $5.00-$5.30. Given this small raise, I would have expected WD-40 stock to rise for the month, not fall 11%.
Doubling down on its core maintenance products
WD-40 Company sells lubricants, including its popular eponymous brand. But it also has a lesser-known portfolio of products for carpet cleaning, toilet cleaning, and other home uses. Management has decided to sell this latter portfolio of brands in most of the market that it operates.
From the perspective of WD-40's management, selling these smaller brands will allow it to focus on the things it needs to do well to be successful. However, the brands in this portfolio accounted for about 6% of the company's total sales in Q2. Selling them will therefore make it a smaller company. And this could be what investors didn't like in April.
However, WD-40's management believes it will quickly replace the lost revenue from its portfolio of home products. Specifically, it just acquired a distributor of its lubricant products in Brazil which will immediately provide it with higher revenue in Brazil than what it has now. And it presents a better opportunity for top-line growth in that country.
Still an expensive stock
Trading at about 47 times its trailing earnings, WD-40 isn't a bargain stock by a long shot. The stock is rarely what I'd call cheap. But as the chart below shows, it trades at a meaningful premium to its 10-year average valuation.
WDFC PE Ratio data by YCharts
WD-40 Company is a mature, reliable business with products that are in high demand all over the world. Therefore, this is a stock that could make a good investment at the right price. However, those looking for a timely opportunity after its drop in stock price in April will need to keep waiting, because this isn't necessarily a good deal today.
