Shares of the WD-40 Company (WDFC 1.36%) jumped 3.9% through 1:10 p.m. ET on Thursday after the famed manufacturer of household lubricants reported strong sales and earnings for its fiscal 2024 third-quarter last night.
Heading into earning, analysts had expected WD-40 to report per-share profits of only $1.38 on $145.8 million in sales. In fact, it earned $1.46 per share on sales of $155 million, a beat on both the top and bottom lines.
NASDAQ: WDFC
Key Data Points
WD-40 third-quarter earnings
Not all of WD-40's news was great. While sales grew 9% year over year, and WD-40 expanded gross profit margins to 53.1%, the company's selling, general, and administrative expenses rose much faster than sales -- up 19% year over year -- and advertising and promotion expenses rose even faster, by 22%.
This increase in operating costs ate up much of the gross-margin improvement and sales gains, limiting WD-40's earnings growth to just 6%.
Still, the news could have been worse. Indeed, Wall Street expected it to be worse, and didn't think earnings would grow at all. But they did.
Is WD-40 stock a buy?
The question for investors now is whether WD-40 can continue growing profits fast enough to justify its stock price. Problem is, I'm not sure it will.
Consider that at $227 per share, WD-40 stock costs nearly 43 times the top of its earnings guidance range for this year (which is $5 to $5.30 per share). That's an awfully expensive price for a company -- even one that's growing sales in the high single digits.
Moreover, management's guidance sees gross margins declining through the end of this year, which implies that net earnings growth will most likely underperform sales growth.
I'm extremely skeptical about the idea of paying more than 40 times earnings for mid- or even high-single-digit growth. Even if other investors are buying WD-40 stock today, I would not buy until the price comes down significantly.
