McCormick (MKC 1.82%) has smoked the market over the last couple of decades. And it has accomplished this in boring fashion. As you can see below McCormick didn't much care for the Internet hype around the change of the millennium, or the financial crisis we are still climbing out of. Remember: slow and steady wins the race.
Growing the spice business
As simple as the spice business seems, McCormick has done a great job selling more and more of them. It has grown its top line from $2.5 billion in sales ten years ago to $4.1 billion in the past year, with each year's revenue higher than the last.
McCormick recently noted that consumer demand is growing due to young consumers interested in cooking, mature adults looking for healthier flavor alternatives to sugar, salt, fat, and growing operations in emerging markets where consumer demand is growing with consumer income.
People like flavorful food, and that trend alone will help McCormick grow. Another great thing about spices is that they don't change much. You won't find McCormick spending huge amounts of money on research and development only to have their efforts become obsolete when a competitor makes something better. Research and development expenses were $61.3 million, $57.8 million, and $58.1 million for 2013, 2012, and 2011 respectively. These numbers represent only around 1.5% of net sales each year.
Management on your side
McCormick's management has a long-term growth rate of 4% to 6% a year for revenue and 9% to 11% a year for earnings per share.
The company's management also has plans to put its strong cash flow to good use by either growing the company through acquisitions or giving cash to shareholders. The company has issued a dividend that has been growing each year for the last 28 years. Along with giving cash to shareholders, the company expects to have acquisitions and share repurchases add 2% to earnings per share per year.
After all, your gain is their gain. Insiders, including executives and directors, hold 12.9% of the common voting shares for McCormick. This often overlooked measure is a simple way to make sure management has their interests aligned with yours.
The bottom line here is that McCormick is a great company and could add plenty of steady growth to your portfolio. However, with the market running to all-time highs, this company is selling at nearly 25 times earnings, well ahead of the industry and market averages of 17.8 and 17.9 times earnings, respectively. No one has a crystal ball to tell you when this stock will be priced at more attractive levels relative to earnings, so you could buy now and know you are getting a piece of a great company at a fair price.
If you buy now it would be wise to add to the position whenever McCormick is trading at cheaper levels. If you do decide to wait, keep a close eye on this business, if added at attractive levels, you could hold this stock forever and be able to sleep at night.