Shares of rust and corrosion preventor WD-40 Company (WDFC 6.63%) -- famous for its blue-and-yellow canisters -- were down 7% as of 11 a.m. ET on Friday. This decline stems from the company's first-quarter earnings on Thursday afternoon, which fell short of analysts' expectations. Sales inched 1% higher, but earnings per share (EPS) slid 8%. Trading at 31 times earnings before the report, this sell-off is understandable, considering the stock's lofty valuation.While management reaffirmed guidance for 2026, the midpoint of its EPS projections leaves the company trading at 32 times next year's earnings, which means the company isn't blatantly "cheap," even after its stock has declined 34% since late 2024.
NASDAQ: WDFC
Key Data Points
The case for WD-40 knocking the rust off
These results were underwhelming. However, there wasn't anything dramatically bad about them. In fact, I'd argue there are reasons for optimism. First, management's focus on premium products (such as its Smart Straw and EZ Reach) and specialty offerings (white lithium grease, gel lube, degreaser, silicone quick dry, contact cleaner, and more) seems to be paying off. Gross margins rose 140 basis points, and the specialty unit saw sales rise by 18%, so WD-40 is producing tangible results in these areas.
Image source: Getty Images.
Furthermore, Chief Executive Officer Steve Brass explained that the sales softness in Q1 was "primarily due to timing-related factors within our marketing distributor network, not a decline in end-user demand." Setting Q1 aside, WD-40 has ambitions to quadruple its sales outside of the U.S. over the long haul -- so this goal shouldn't be seen as "missed" after just 90 days of information. Targeting annualized revenue growth of 6.5% in the Americas, 9.5% in Europe, and 11.5% in Asia, WD-40 could grow into its premium valuation if it meets internal expectations going forward.
