The Henkel share, on the other hand, has lost around 30 percent of its value since its high in mid-2017:
The price developments show that, contrary to their reputation, value stocks are anything but boring. But why was the Procter & Gamble share able to gain so strongly while that of the competitor Henkel lost significantly? And which of the two stocks is the better buy today? The answers to all of these questions, which Warren Buffett could have asked, can be found here.
Procter & Gamble and Henkel as competitors
We have already prepared our own stock analysis for both Procter & Gamble and Henkel, in which we look at the business models of both companies.
The two brand giants face each other as direct competitors in two segments. The following table shows which segments these are and which company generates more sales:
In contrast to Procter & Gamble, Henkel operates in a cyclical segment with adhesives, because a large proportion of the customers there come from industry, for example the automotive industry. An economic downturn would mean headwinds for around 40 percent of Henkel’s sales, which is why the risk for Henkel shares tends to be greater. From this point of view, a valuation discount compared to the Procter & Gamble share is justified.
Procter & Gamble vs Henkel – which stock is the better buy?
After the Procter & Gamble share has risen by over 100% within 1 ½ years, the question arises as to whether the train has already left or whether the share offers further price potential. The Henkel share, on the other hand, could be a turnaround candidate after falling 30 percent since its all-time high. With the help of the dynamic stock valuation, we check how much potential there is in both stocks.
Does the Procter & Gamble share have even more price potential?
|Procter & Gamble share|
|Market capitalization||€ 297.3 billion|
|Stability dividend||0.99 from max. 1.0|
|Stability gain||0.57 of max. 1.0|
Procter & Gamble shareholders had to survive a ten-year dry spell from the beginning of 2008 to mid-2018 before the share got going again:
The reason for the long sideways phase was stagnating sales for years with strongly fluctuating margins. Due to massive acquisitions such as the mega-acquisition of Gilette in 2005 for USD 57 billion, Procter & Gamble had put on too much fat and lost focus in the confusion of many brands. In 2015, the management took action. The big cleanup followed, as a result of which the brand portfolio was reduced from 200 to 65, factories were built in cheaper emerging markets, and marketing spending was redirected to more efficient and cost-effective digital marketing channels. In fiscal 2017, sales and adjusted profit finally increased again. Nevertheless, it took another year for the market to reward the corporate restructuring and for the share to skyrocket.
However, the price doubling has left its mark on the stock’s valuation. The current P / E based on adjusted earnings is 25.6, well above the average P / E over the last 10 years of 20.8. Accordingly, the Procter & Gamble share appears to be significantly overvalued. In view of the company’s new growth dynamic, you can grant the share a slightly higher multiple than 20.8 – for example 22. But even in this case, the Procter & Gamble share remains airily valued with a fair value for the current financial year of 122 USD, which is offset by an actual share price of USD 137. A correction to the fair value determined in this way would mean a price loss of 10 percent. The fair value based on the dividend (blue line) also indicates an overvaluation of the share.
Fortunately, according to analyzes, earnings will continue to rise in the following years, which means that if this scenario occurs, the fair value of the stock will also rise. By the end of fiscal year 2023, the fair value is expected to rise to USD 140 and thus above the current share price. The result would be a positive return expectation for the year of 3.2 percent:
But 3.2 percent expected return for the year is not much, especially since there is a risk of short-term setbacks. In this respect, the train at Procter & Gamble seems to have gone a long way after the rapid price increase. We already have a free stock analysis for Procter & Gamble published in which we go into more detail on the business model, among other things.
With the Henkel share in the turnaround?
|Henklel share (trunk)|
|Market capitalization||€ 33.9 billion|
|Stability dividend||0.96 of max. 1.0|
|Stability gain||0.92 of max. 1.0|
From 2009 to mid-2017, Henkel shareholders celebrated their impressive share price gains of a good 26 percent annually.
But then corporate profits went down and the share temporarily lost over 40 percent of its value. Even after recovering from the Corona crash, the share is still 25 percent away from its old high:
The cause of the declining corporate profits and the subsequent price losses are primarily margin pressure due to increased competition, for example from the supermarkets’ own brands in the personal care sector. However, some of the problems at Henkel seem homemade, and medicinal medicine looks a lot like Procter & Gamble’s strategy for success. On the list of measures to be implemented stands the sale or the discontinuation of weak brands with a turnover of over one billion euros by the end of 2021. In addition, the existing brands are to be rejuvenated and new, more promising brands are to be brought onto the market and high-growth brands over 500 million euros are to be acquired.
If the success strategy of Procter & Gamble works, the Henkel share might be about to turn around. So get on quickly before the train left without you? The decision depends on whether you 1) believe in a turnaround and 2) the Henkel share is actually cheap. We do not clarify the question of faith here. Instead, let’s look at the stock’s rating:
The first observation is that the market values the Henkel share with a ten-year average P / E of 17.4 compared to Procter & Gamble with a P / E of 22.9 – in each case based on the reported profit. That means a valuation discount for the Henkel share compared to that of Procter & Gamble. The second observation is that the current P / E ratio results in a very low fair value of 66 euros due to the collapsed profit. However, this low, fair value appears unsuitable for the valuation because the P / E ratio is based on a presumably short-term profit slump. According to analysts, profits should rise again soon and the fair value should recover accordingly. With this in mind, we are looking to the future until the end of the 2023 financial year, where we will find a fair value of EUR 87, which corresponds to an expected annual return of 5.6 percent.
Every year 5.6 percent seem too little for a turn-around story that has not yet been written. Therefore, the Henkel share is not a buy for me either. We already have a free stock analysis for Henkel published in which we go into more detail on the business model, among other things.
Even more value for your portfolio
We have analyzed other value stocks for you, all of which are free. A click on the respective link takes you directly to the free stock analysis.
The same applies to value stocks: If the return is low, “hands off!”
In the wake of the tech boom, you might think that only tech stocks are overpriced. But even value stocks can have such an unfavorable risk-return profile that buying them is not worthwhile. For me, this is currently the case with both Procter & Gamble and Henkel shares. But don’t be sad. In the share finder there are hundreds of dividend paying value shares, whose return expectations you can determine yourself at any time with the help of the dynamic share valuation.