Over the past six months, Colgate-Palmolive has been a great trade, beating the S&P 500 by 5.7%. Its stock price has climbed to $84.48, representing a healthy 8.8% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy CL? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does Colgate-Palmolive Spark Debate?
Formed after the 1928 combination between toothpaste maker Colgate and soap maker Palmolive-Peet, Colgate-Palmolive (NYSE: CL) is a consumer products company that focuses on personal, household, and pet products.
Two Positive Attributes:
1. Elite Gross Margin Powers Best-In-Class Business Model
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.
Colgate-Palmolive has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 60.3% gross margin over the last two years. That means for every $100 in revenue, only $39.65 went towards paying for raw materials, production of goods, transportation, and distribution. 
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Colgate-Palmolive has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 17.7% over the last two years.
One Reason to be Careful:
Slow Organic Growth Suggests Waning Demand In Core Business
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Colgate-Palmolive’s products has generally risen over the last two years but lagged behind the broader sector. On average, the company’s organic sales have grown by 4.5% year on year. 
Final Judgment
Colgate-Palmolive’s positive characteristics outweigh the negatives, and with its shares outperforming the market lately, the stock trades at 21.8× forward P/E (or $84.48 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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