2023-07-15 01:58:39 ET
Summary
- Despite a recent dip in stock price, Procter & Gamble's robust business model and strong long-term prospects are highlighted.
- Procter & Gamble presents a bullish price pattern, emerging at a critical price point of $158.
- Despite short-term bearish sentiments, the long-term outlook for the company remains bullish.
The Procter & Gamble Company ( PG ), the multinational consumer goods company, has witnessed a dip in its stock price performance this year, contrasting sharply with the broader market's rally. This may lead some investors to conclude that PG's growth phase is tapering off. However, this viewpoint tends to oversimplify the scenario and overlook the numerous aspects of PG's robust business model that affirm its strong long-term prospects. This article provides a detailed technical breakdown of the PG stock price, offering insights into potential future trends for long-term investors. The analysis uncovers the emergence of a bullish price pattern, with the key level set at $158.
Unpacking PG's Long-term Prospects Amid Short-term Challenges
Despite recent sluggish stock price performance, which saw PG shares slightly fall as the S&P 500 surged over 10% year-to-date, PG’s inherent business strength is far from waning. Its gross profit margin in the most recent quarter rose by 2%, a testament to its pricing power at a time when many businesses are grappling with escalating costs. Even in a challenging cost and operating environment, as described by CEO Jon Moeller, PG successfully increased prices faster than its peer, Kimberly-Clark Corporation ( KMB ), and saw a less significant shrink in organic sales volume.
Operationally, PG's efficiency is illustrated by its robust operating profit margin, holding above 20% of sales as seen in the chart below. This strong profitability bodes well for shareholders, with the company projecting to pay approximately $9 billion in dividends and allocate as much as $8 billion toward stock buybacks this year. Furthermore, PG's robust margin performance could potentially rise as inflation moderates, further fortifying its position in the market.
Amidst the stock's declining performance in 2023, two silver linings emerge. Firstly, PG's shares now trade at a cheaper valuation, setting the stage for potential solid returns. PG’s shares are valued at around 4.5 times annual sales, down from nearly 5 in the previous years. Secondly, due to a fairly flat stock price and increased payout, PG's dividend yield has risen slightly, offering a sweetener for investors on top of future expected cash returns via stock buybacks. Moreover, PG announced a 7% rise in organic sales , indicating sustained growth amid market challenges. Despite price increases making up a significant portion of this growth, it does highlight PG’s ability to maintain overall sales growth by passing higher costs onto consumers.
Despite the slightly bearish sentiments around PG stock in the short term, the long-term view remains decisively bullish. The company's dominance in numerous product categories, its ongoing sales growth and profit augmentation, and its strong margins all indicate a robust and resilient business model capable of withstanding temporary headwinds. As such, for patient investors who can ride out short-term volatility, the potential for market-beating returns in the long term appears highly promising with PG stock. The stock price may currently be in the doldrums, but given PG’s robust fundamentals, this situation will likely be a temporary phase rather than a permanent state of affairs.
Navigating the Implications of Heavy Volatility Bars
PG's long-term outlook, as revealed by the yearly chart below, points towards a powerful bullish trend. The steadily escalating price trajectory has seen only minor corrections in the years 2000, 2010, and 2015, each of which ultimately spurred further upward momentum. The most pronounced price surges occurred during the years 2019 to 2021, with the stock reaching an all-time high of $160.66 before a subsequent correction.
Procter & Gamble Yearly Chart (stockcharts.com)
These dramatic gains can be attributed to the global pandemic, which triggered an increased demand for PG's health, hygiene, and home care products. Brands such as Charmin, Bounty, Dawn, Febreze, and Pampers all saw increased demand due to stay-at-home measures, heightened cleaning habits, and an intensified focus on personal hygiene. Furthermore, PG's diverse consumer staples portfolio remained in constant demand irrespective of the prevailing economic climate, offering stability and potential for growth during uncertain times like the COVID-19 pandemic.
PG's substantial investments in its online sales capabilities have also paid off, with the accelerated shift towards e-commerce during the pandemic benefiting the company's robust digital presence. However, following the substantial price upswing, the stock was heavily overbought, prompting a notable correction in 2022. This resulted in a bearish candlestick following six consecutive years of price gains. But, much like the minor corrections in 2000, 2010, and 2015, PG's price rebounded from this dip.
The large swings indicate a period of stabilization at the current price level before the potential for further upward movement. The enduring bullish trend and increasing price volatility seen in the quarterly chart below, charting PG's rise from lows of $16.01 to highs of $160.66 during the 21st century, demonstrates the stock's substantial performance and points towards anticipated future volatility. Consequently, investors should handle this stock with a detailed understanding of its dynamics to effectively manage potential price fluctuations.
Procter & Gamble Quarterly Chart (stockcharts.com)
Determining PG's Crucial Stock Price Levels
In light of the strong bullish trend and heightened volatility, the weekly chart reveals an emerging inverted head and shoulders pattern. The pattern's head lies at $119.81 with shoulders at $138.58 and $134.99. The neckline sits at $158, with a breach of this level signaling a potential for higher prices. However, given the recent downward correction amid increased volatility, there is a higher risk of prices declining further. As such, investors are advised to consider long positions if the price breaks the $158 level or if the price lowers to the $130 range.
Procter & Gamble Weekly Chart (stockcharts.com)
Market Risks
In the face of the clear strength of PG's business fundamentals and the promise of its long-term growth, it is of utmost importance that potential investors remain cognizant of the potential market risks inherent in its stock. The enduring bullish trend of PG's stock is counterbalanced by an escalation in price volatility, which presents certain risks, particularly for those with a short-term investment horizon.
While P&G has demonstrated adaptability in handling escalating costs, persistent inflation or surging expenses could challenge its ability to maintain pricing power and profit margins. Moreover, the company is subject to fierce competition within the consumer goods sector. In order to sustain growth and preserve its market share, it's imperative for P&G to continue its path of relentless innovation and superior marketing strategies, thereby keeping a competitive edge over strong rivals like KMB.
From a technical perspective, P&G's stock price has manifested an inverted head and shoulder pattern. Nevertheless, if the stock price were to drop below the $119 threshold, this would disrupt the pattern, indicating a possibility for additional decline in the stock's value. Therefore, it is imperative that investors remain vigilant and consider these various factors in their investment strategy.
Bottom Line
Despite PG's stock price dip in 2023, multiple factors reinforce its strong long-term prospects and position it as an attractive opportunity for investors. An increase in gross profit margin and organic sales points to the company's resilience amid a challenging sales environment. With shares now trading at a cheaper valuation, the potential for substantial returns exists. The technical perspective suggests a robust bullish trend in the market, with a critical juncture for additional growth situated at the $158 mark. A surge beyond this key level could trigger a potent upward rally. Furthermore, the substantial price fluctuations observed in 2019, 2020, and 2021 highlight a period of heightened volatility, emphasizing the need for investors to tread with caution. Investors may consider enhancing their stake at the $158 mark, or alternatively, they could augment their holdings if prices decline toward the $130 range, in anticipation of subsequent price increases.
For further details see:
Procter & Gamble: Buy The Key Level (Technical Analysis)