WD-40 Company (WDFC) creates and distributes maintenance goods, home care, and cleaning products across the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company owns several well-known trademarks, including WD-40 Multi-Use Product, WD-40 Specialist, 3-IN-ONE, GT85, 2000 Flushes, no vac, 1001, Spot Shot, Lava, Solvol, X-14, and Carpet Fresh.

Its shares fell 14.9% on July 8 after the firm reported disappointing fiscal third-quarter results on July 7 and reduced its guidance for fiscal 2022, citing high inflation as a drag on earnings and sales.

According to the company, sales growth for fiscal 2022 is expected to be between 6% and 9%, with revenues ranging from $519 million to $532 million, compared to the previously estimated sales growth of 7% to 12%, with revenues ranging from $522 million to $547 million.

The stock has plunged 33.4% over the past year and 28.8% year-to-date to close its last trading session at $174.30. DA Davidson analyst Linda Bolton lowered its price target on the stock from $172 to $169 and set a “neutral” rating.

Here's what could shape WDFC's performance in the near term:

Inadequate Financials

WDFC's net sales decreased 9.3% year-over-year to $123.67 million for the third quarter ended May 31, 2022. Its income from operations declined 30.5% from the prior-year quarter to $18.98 million.

The company’s net income declined 31.1% from the year-ago value to $14.48 million, and its loss per share amounted to $1.07. In addition, its cash and cash equivalents came in at $40.79 million, representing a decline of 52.5% for the nine months ended May 31, 2022.

Impressive Growth Prospects

Street expects WDFC's revenues and EPS to rise 6.9% and 1.8% year-over-year to $521.76 million and $5.18, respectively, in fiscal 2022. In addition, WDFC's EPS is expected to rise at a 10% CAGR over the next five years. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in two of the trailing four quarters.

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 34.34x, 94.7% higher than the industry average of 17.64x. Also, its forward EV/Sales of 4.74x is 158.9% higher than the industry average of 1.83x. Moreover, WDFC's forward Price/Sales of 4.56x is 283.7% higher than the industry average of 1.19x.

Mixed Profitability

WDFC's trailing-12-month gross profit margin of 50% is 50.6% higher than the industry average of 36.3%. Its trailing-12-month EBITDA margin is 17.5% and 44.2%, higher than its industry average of 12.14%. However, its trailing-12-month levered FCF margin and CAPEX/Sales multiple are 16.4% and 29.9% lower than their respective industry averages.

POWR Ratings Reflect Uncertainty

WDFC has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. WDFC has a D grade for Value. The company’s higher-than-industry valuation is in sync with the Value grade.  

Of the 63 stocks in the C-rated Home Improvements & Goods industry, WDFC is ranked #41.

Beyond what I've stated above, you can view WDFC ratings for Growth, Stability, Quality Momentum, and Sentiment here.

Bottom Line

WDFC’s worsening financial performance and lowered forecasts for fiscal 2022 have weighed on its price performance. Also, the stock is currently trading below its 50-day and 200-day moving averages of $187.55 and $211.51, respectively, indicating a downtrend. So, we think investors should wait for a better entry point in the stock.

How Does WD-40 Company (WDFC) Stack Up Against its Peers?

While WDFC has an overall C rating, one might want to consider its industry peer, Acuity Brands Inc. (AYI) and Bassett Furniture Industries Incorporated (BSET), which have an overall A (Strong Buy).

WDFC shares were trading at $174.71 per share on Monday morning, up $0.41 (+0.24%). Year-to-date, WDFC has declined -28.06%, versus a -18.52% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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