Over the past six months, Colgate-Palmolive’s shares (currently trading at $79.74) have posted a disappointing 12.3% loss, well below the S&P 500’s 11.7% gain. This might have investors contemplating their next move.

Given the weaker price action, is now a good time to buy CL? Find out in our full research report, it’s free for active Edge members.

Why Does CL Stock Spark Debate?

Formed after the 1928 combination between toothpaste maker Colgate and soap maker Palmolive-Peet, Colgate-Palmolive (NYSE: CL) is a consumer products company that focuses on personal, household, and pet products.

Two Positive Attributes:

1. Elite Gross Margin Powers Best-In-Class Business Model

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Colgate-Palmolive has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 60.3% gross margin over the last two years. That means Colgate-Palmolive only paid its suppliers $39.72 for every $100 in revenue.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Colgate-Palmolive has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 17% over the last two years.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Colgate-Palmolive’s 4.2% annualized revenue growth over the last three years was tepid. This wasn’t a great result compared to the rest of the consumer staples sector, but there are still things to like about Colgate-Palmolive.

Final Judgment

Colgate-Palmolive’s merits more than compensate for its flaws. With the recent decline, the stock trades at 21.3× forward P/E (or $79.74 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

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