Source: PaxForex Premium Analytics Portal, Fundamental Insight
Few companies boast valuations exceeding $1 trillion, typically dominating the high-growth tech sector. This exclusive league, comprising Wall Street darlings like Apple and Meta Platforms, thrives on the fervor surrounding their exceptional earnings prospects.
In an unexpected turn, Procter & Gamble, a consumer staples behemoth, might stealthily enter this elite circle in the coming years. As one of the world's most highly valued companies operating beyond the tech realm, P&G presents a unique contender.
However, achieving a valuation surpassing $1 trillion by the conclusion of the seven-year period in 2030 would undoubtedly pose a formidable challenge for P&G. A more detailed exploration is warranted.
Presently valued at $370 billion, Procter & Gamble holds the 8th position among the 30 stocks listed in the Dow Jones Industrial Average. In early 2024, Microsoft and Apple dominate the list, each boasting a market capitalization of nearly $3 trillion.
The prospect of P&G reaching the $1 trillion mark necessitates a remarkable journey, demanding a near tripling of its current value, a daunting 170% surge by 2030. Assessing the feasibility of this growth trajectory reveals a challenging but not entirely implausible scenario. Over the past decade, the stock has exhibited a 100% gain, while the broader Dow registered a 140% increase. To accomplish this ambitious target, P&G must maintain a compound annual growth rate (CAGR) of just under 16% for the next seven years. This, however, poses a formidable task for a consumer staples giant operating in an industry that typically experiences mid-single-digit growth annually.
Considering dividends in the equation brightens the outlook for P&G. Factoring in the total returns, inclusive of rising dividend payments, P&G witnessed a commendable 170% increase over the past decade.
While a 10-year span is notably longer than the targeted seven-year period, and these returns pertain to shareholders rather than market capitalization, it's not inconceivable for P&G to potentially deliver a return of around 150% to shareholders by 2030.
The trajectory will heavily hinge on the company's performance in the forthcoming years. P&G reported a 4% year-over-year increase in organic sales for the latest quarter, indicating a consistent growth trajectory for the full 2024 period. Although this reflects a slower expansion than witnessed in recent years, the accelerated earnings, fueled by price increases, provide optimism. The consumer staples leader's ability to outpace industry growth while steadily enhancing its dividend annually is a reasonable expectation.
Assuming these victories translate into approximately 10% annual returns, the remainder of the target would necessitate an expanding premium for the stock. This, in turn, relies on P&G elevating its profit margins beyond the conventional rates expected in this sector.
There is already positive momentum, with operating income trending upward at 24%, compared to the pre-pandemic period's approximate 20%. Further improvements in profitability, reaching the high 20% range, could contribute to higher returns for the stock over time.
Investors are advised not to overly fixate on P&G achieving a specific market-cap milestone. Instead, attention should be directed towards monitoring core sales and earnings trends. Successes in these fundamental aspects will naturally facilitate stock returns.
P&G is poised to provide shareholders with consistent returns in the low-double-digit range, achieved through a blend of capital gains and dividend income. This approach offers a more stable investment compared to the potential volatility associated with technology-focused specialists. Even if the timeline for reaching a $1 trillion market cap extends over a decade or more, considering this blue-chip giant for inclusion in one's watch list is a prudent move.
As long as the price is above 155.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 160.48
- Take Profit 1: 165.00
- Take Profit 2: 170.00
Alternative scenario:
If the level of 155.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 155.00
- Take Profit 1: 150.00
- Take Profit 2: 145.00
