Procter & Gamble Co (NYSE:PG) is a classic blue chip stock. The only problem is that growth is slowing down. Over the past five years, revenues has averaged a negative 1.5% annual growth rate. Over that time frame, EPS has also fallen.
Somehow, this stock still trades at 25 times forward earnings. In any other market, this valuation would be appropriate for a growth company. Procter & Gamble’s days of growth are long gone, yet the pricey multiple remains.
But what if the company makes a resurgence? Could now be the time to buy low?
As we’ll see, the world has changed. And I’m not just talking about the coronavirus. Procter & Gamble is built for another era — one that ended almost a decade ago. If you want to profit, you’ll have to think outside the box.
The golden age is over
Procter & Gamble used to be an incredible stock. Even Warren Buffett accumulated a giant stake. Since 1980, shares have increased by 5,075% versus a rise of 2,525% for the S&P 500 Index.
What accounted for this success? Market power.
Procter & Gamble has long been one of the largest consumer product companies in the world. It owns hundreds of globally recognized brands, including Gillette, Pantene, Head & Shoulders, Olay, Tide, Crest, Downy, Pampers, Vicks, Old Spice, Febreze, Oral-B, Braun, Mr. Clean, Swiffer, and Gain. The list goes on and on.
It should be noted that these brands weren’t always iconic. Procter & Gamble made them that way by controlling aisle space and ad budgets.
In previous decades, almost all consumer product sales came from brick-and-mortar stores. With so many brands in its portfolio, Procter & Gamble had power over the stores that stocked its goods. It could force out competing products, placing its items in more favorable locations.
Additionally, with a multi-billion dollar ad budget, the company could run ads on primetime television, the chief way of gaining customers in the pre-internet era. In essence, Procter & Gamble controlled the distribution and marketing game. That’s what fuelled the stock’s long-term rise.
For better or worse, that era is now over.
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Forget Procter & Gamble
Think about your own spending. Do you only go with trusted brands stocked in brick-and-mortar stores? Or do you take chances on upstart brands, purchasing products over the internet?
In recent years, we’ve seen countless direct-to-consumer brands enter the market. Brands like Allbirds, De Lune, and Hims have turned the retail model upside-down. They don’t need physical stores to sell their products, and they don’t need massive ad budgets. All they needed to succeed was to open an online store. Shopify (TSX:SHOP)(NYSE:SHOP) makes this easier than ever.
With Shopify, startups can circumvent Procter & Gamble’s power machine. They’re able to create a storefront in minutes. Then they can spend a few dollars on hyper-targeted Facebook ads to acquire their first customers. It’s as simple as that.
Shopify’s platform includes everything they need, from payment processing and inventory management to working capital loans and marketing advice. Suddenly, entrepreneurs can emulate the market power of Procter & Gamble with a few clicks.
The days where Procter & Gamble ruled the consumer retail landscape are over. Tech stocks like Shopify are taking the market share left behind.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook, Shopify, and Shopify. Fool contributor Ryan Vanzo has no position in any stocks mentioned.