Clorox valuation offers strong margin of safety
The guest argued that Clorox represents a compelling investment when purchased below 16 times earnings (or under $110 per share) due to its historical valuation range and resilient product mix.
The argument
After pandemic-induced distortions and a subsequent sell-off, the guest noted that Clorox's valuation fell to a level that provides a strong margin of safety. The guest stress-tested the business against historical periods of high oil prices and the Great Financial Crisis to verify margin resilience.
The thesis, stress-tested
✓ What validates it
- ✓Stock trading at or below 16x earnings
- ✓Regression of earnings growth back to the historical 6% to 8% range
▸ Risks discussed
- ▸Spikes in petrochemical/input costs
- ▸Higher economic sensitivity compared to absolute staples like toilet paper
Hear it yourself
"Sure enough, a couple months later, the war with Iran breaks out, petrochemical prices skyrocket, and the shares plunge back down to under a $110, leaving me with the margin of safety that I needed to get comfortable to step in."
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