Is Clorox a Buy at These Prices?

With shares of Clorox (NYSE:CLX) trading around $82, is CLX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Clorox is a manufacturer and marketer of consumer and professional products. Clorox operates in four segments: Cleaning, Household, Lifestyle and International. Clorox sells its products primarily through merchandisers, grocery stores, other retail outlets, distributors and medical supply providers. The company’s products include its namesake bleach and cleaning products, Clorox Healthcare, HealthLink, Aplicare and Dispatch products, Green Works naturally derived home care products, Pine-Sol cleaners, Poett home care products, Fresh Step cat litter, Glad bags, wraps and containers, Kingsford charcoal, Hidden Valley and K C Masterpiece dressings and sauces, Brita water-filtration products, and Burt’s Bees products. Many of the general products provided by Clorox are considered necessities by many consumers and companies worldwide. Look for Clorox to provide products that will continue to be enjoyed and needed.

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T = Technicals on the Stock Chart are Mixed

Clorox stock has seen a consistent uptrend over the last several years. The stock broke out to all-time high prices this years but has recently pulled-back a bit. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Clorox is trading around its rising key averages which signal neutral to bullish price action in the near-term.

CLX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Clorox options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Clorox Options

18.74%

83%

81%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Clorox’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Clorox look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-0.99%

17.72%

3.06%

4.75%

Revenue Growth (Y-O-Y)

0.86%

8.52%

2.53%

3.98%

Earnings Reaction

-1.44%

0.33%

0.95%

0.08%

Clorox has seen mostly increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with Clorox’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Clorox stock done relative to its peers, Colgate-Palmolive (NYSE:CL), Procter & Gamble (NYSE:PG), Zep (NYSE:ZEP), and sector?

Clorox

Colgate-Palmolive

Procter & Gamble

Zep

Sector

Year-to-Date Return

13.30%

11.36%

13.57%

12.95%

11.44%

Clorox has been a relative performance leader, year-to-date.

Conclusion

Clorox provides essential products that offer many uses to consumers and companies worldwide. The stock has been in a consistent uptrend over the last few years which has taken it to all-time high prices. Over the last four quarters, earnings and revenue figures have mostly increased which have pleased investors in the company. Relative to its peers and sector, Clorox has been a year-to-date performance leader. Look for Clorox to OUTPERFORM.

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