Is it safe to buy Colgate-Palmolive stock as inflation weighs on margins?

On Friday, Colgate-Palmolive Co. (NYSE:CL) shares edged slightly lower despite reporting better-than-expected fiscal first this-quarter results. The company announced its most recent quarterly results before markets opened, beating the consensus Street estimates for revenue and non-GAAP earnings. Colgate also said rising inflation weighed on its profitability margins.

The company posted FQ3 non-GAAP earnings per share of $0.81, narrowly beating the consensus for analyst estimates of $0.80. On the other hand, its GAAP EPS of $0.75 was below the expectation of $0.80, while revenue for the quarter increased by 6.3% from the third quarter in 2020 to $4.41 billion, exceeding expectations by $10 million.

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Colgate’s GAAP profit margin fell by 180 basis points to 59.4% due to rising inflation. The stock price has declined by nearly 10% this year.

Is it time to buy?

From an investment perspective, Colgate-Palmolive shares trade at reasonable trailing 12-month and forward P/E ratios of 23.88 and 22.16, respectively.

In addition, analysts expect its earnings to grow by 14.10% this year, before rising at an average annual rate of 6.83% over the next five years.

In comparison, Colgate’s earnings grew at an average annual rate of 15.60 over the last five years. Therefore, the company seems to be experiencing a slowdown in growth, making it less attractive to investors.

Technically, Colgate-Palmolive shares appear to have recently completed a bullish breakout from a descending channel formation. However, the stock still trades below the 100-day moving average and is yet to reach overbought conditions.

Therefore, investors could target extended gains at about $74.88, or higher at $80.51. On the other hand, if the stock pulls back pre-maturely, it could find support at $74.29, or lower at $72.21.

It could be time to buy Colgate shares

In summary, although Colgate shares appear to be experiencing a slowdown in growth, the stock still trades at reasonable valuation multiples, making it an interesting option for value investors.

In addition, the current rebound is yet to reach overbought conditions, leaving room for more upward movement.

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