The increase in WD-40's share price occurred on Thursday.
WD-40 Company's shares saw a 3.9% surge during trading hours on Thursday, following its impressive third-quarter earnings report for fiscal 2024. The household lubricant giant outperformed analyst expectations, reporting earnings of $1.46 per share against the projected $1.38, and enjoying a 9% increase in sales, reaching $155 million.
However, digging deeper into the company's financials reveals mixed results. While sales growth and gross profit margins improved, sellings, general, and administrative expenses soared by 19%, and advertising and promotion expenses skyrocketed a staggering 22%. This surge in operating costs ate away at the gross margin gains and sales growth, limiting the company's earnings growth to a moderate 6%.
Despite these challenges, thenews was better than anticipated. Analysts expected no earnings growth at all, so this performance was a welcome surprise.
Whether to invest in WD-40 stock now is a matter of debate. At a price of $227 per share, the company is valued at a hefty 43 times the top of its earnings guidance range for this fiscal year. This steep valuation raises questions about its ability to deliver returns commensurate with the price tag.
Furthermore, management's guidance suggests that gross margins might decline towards the end of the year, which could translate into underwhelming earnings growth compared to sales growth. Given these concerns, investing at current prices may not be a wise move.
Here are some insights from the company's financial reports and analyses to consider:
- Valuation: The company's P/E ratio stands at around 44.7x, which is higher than its historical levels. This high valuation suggests that investors are placing a premium on the company's earnings, which could affect future growth expectations.
- Operating Costs: Gross margin improved to 54.8% thanks to a favorable sales mix and supply chain initiatives. However, sellings, general, and administrative expenses grew by 14%, while advertising and sales promotion expenses climbed by 20%. These costs could potentially impact future profitability if not effectively managed.
- Strategic Initiatives: The company's focus on core maintenance products, which have delivered three consecutive quarters of double-digit growth, is expected to drive profitable growth across various regions. Moreover, the expansion of distribution and promotional activities could boost sales in high-potential markets.
- Guidance and Outlook: The company maintains its net sales growth, gross margin, and earnings per share guidance for fiscal year 2025. It aims to unlock value in high-potential markets while continuing to drive operational efficiency and profitable growth. The provision for income tax is expected to be around 24%.
The choice to invest in WD-40 stock boils down to one's assessment of its current valuation, operating costs, and strategic initiatives against its projected growth potential. Given the high valuation and concerns about operating expenses, it might be wise to wait for a more favorable entry point before jumping in.
In light of the mixed financial results, some investors might be hesitant about investing in WD-40 stock due to its high valuation of 43 times the top of its earnings guidance range for this fiscal year. Furthermore, the surge in operating costs, such as sellings, general, and administrative expenses and advertising and promotion expenses, could potentially impact future profitability.
Analysts and investors interested in finance might want to closely monitor WD-40 Company's ability to manage its costs and deliver returns that justify its current share price. Effective cost management could be crucial to maintaining the company's earnings growth and overall financial health.
