Procter & Gamble currently trades at $147.39 per share and has shown little upside over the past six months, posting a middling return of 3%. The stock also fell short of the S&P 500’s 18.4% gain during that period.
Is there a buying opportunity in Procter & Gamble, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Procter & Gamble Not Exciting?
We don’t have much confidence in Procter & Gamble. Here are three reasons why there are better opportunities than PG, plus one stock we’d rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Procter & Gamble’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 1.5%. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Procter & Gamble’s revenue to rise by 1.9%, close to its 2% annualized growth for the past three years. This projection is underwhelming and suggests its newer products will not catalyze better top-line performance yet.
3. Operating Margin in Limbo
Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
Looking at the trend in its profitability, Procter & Gamble’s operating margin might have fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 24.8%.
Final Judgment
Procter & Gamble isn’t a terrible business, but it doesn’t pass our bar. With its shares underperforming the market lately, the stock trades at 21.2× forward P/E (or $147.39 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Procter & Gamble
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