Colgate (NYSE:CL): There’s more to it than toothpaste – it could be the best way to profit from the growth in pet products!

In Australia, we know Colgate (NYSE:CL) primarily as a toothpaste brand. But there’s a lot more to this 217-year old company than you may think. We think this stock may be the best way to gain exposure to the growth in pet care.

However, we cannot talk about this company without addressing its decline in the past year and whether or not this is a chance to ‘buy the dip’ or the start of a longer-term decline.

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Who is Colgate?

Colgate is a consumer products company, headquartered in Manhattan, New York and present all over the world. Its purpose is ‘Reimagining a healthier future for all people, their pets and our planet’.

Named after co-founder William Colgate, it sells not just toothpaste but brands across pet nutrition, personal care and home care. It sells products ranging from Palmolive shampoo, to Hills pet-food, Ajax home cleaning products even an LED device that can remove 10 years worth of stains in just 3 days.

Of course, toothpaste is important to it as it has a 42% market share, along with a 32% share in the manual toothbrush market. And it has market leadership because it keeps innovating with new versions that have a great impact on oral health than competing products. And it does not just sell consumer toothpaste but professional brands used by dentists.

A diverse sales mix

It is highly diversified in its revenue stream with no geography with over 24% – that title held by Latin America. While inflation  led to many consumer companies’ products falling, it as been the opposite with Colgate, even as it raised prices. And its growth has been occurring across both developed and emerging markets. It has the number one market share in toothpaste worldwide and Hills is the most recommended pet food brand. In CY24, it recorded $4.1bn in operating cashflow and $20.1bn in worldwide sales.

Most pleasingly, it has been able to maintain margins in spite of increasing marketing spending. The company has grown gross margins and operating profits for four straight quarters, and the latter metric by double digits.

Colgate has been paying dividends to shareholders for 129 years and has raised dividends consistently for the past 60 years. It has returned >US$30bn to shareholders, through dividends and stock buybacks, over the last decade. It has one of the best ESG angles of any company as it expands into more countries – reaching children worldwide in countries with poor oral health standards.

The best way to gain exposure to pet care

We all know the pet market is growing substantially with the spike in pet ownership during the pandemic. Colgate is exposed to this area with its Hills Pet nutrition products. Although they only account for just over 22% of the company’s total sales, it is growing faster than any other segment. In 2024, it made $4.5bn from pet sales out of $20.1bn total sales. This was 4% growth in pet care vs 2.3% overall.

The company anticipates further sales growth as it captures more of the market, having undertaken the purchase of brownfield facilities from other companies and building of its own facilities. Fortune Business Insights estimates that the market is worth US$246.7bn right now and will grow to US$368.9bn by 2030 – representing a CAGR of 5.92%. As many pet owners can attest to, pets can be like family members. So pet owners won’t be cutting back expenditure on their furry (or feathered) friends, particularly given the focus Colgate has on having pet food scientifically-proven to derive benefits.

2025 hasn’t been easy

Before we go further, we need to address the uncomfortable fact that Colgate shares have fallen 20% in the last year. There are reasons. A couple of times its revenue and EPS have missed guidance. And this has been due to several factors including weaker growth in certain markets – India was a standout where sales fell 12% in a quarter and sales fell 7% in Latin America in one quarter.

In uncertain times, consumers may trim discretionary spending or trade down from premium brands. We know how strong the US dollar is, but the flip side is that emerging market currencies have been weaker and so Colgate has cost more than they otherwise would. This effect is also felt in input costs which remain elevated.

You could also argue consumer staple stocks like Colgate have less growth excitement compared to tech/AI and other sectors, making them more vulnerable when growth slows.

For the full 2025, the company expects net sales growth roughly flat, including a negative forex impact, but organic sales growth to be 2-4%. It expects EPS/net income to be up ‘low single digits’.

Good growth to come, yet reasonably valued

Analysts do expect share to bounce back. The mean target price is US$90.21 vs US$79 currently – but even the former is below last year’s highs. They expect near-flat revenues in 2025 with $20.3bn, but then they expect stronger growth in the years ahead – $21.1bn in 2026, $21.8bn in 2027 and $22.4bn in 2028.

Turning to the bottom line, and analysts expect $3.60 EPS in 2025 vs $3.51 the year before. This would translate to a $2.9bn profit given the 800m shares on issue. Thereafter, $3.88 in 2026 and $4.18 in 2027.

These multiples put the company at 20.3x P/E, but at 5.1x PEG. Not cheap by any means – Kimberley-Clark trades at 15.8x 2026 P/E whilst Procter & Gamble is 21.8x.

Is Colgate a buy?

It is hard to find US-listed companies with consistent, solid EPS and sales growth as Colgate. Nonetheless, it appears that the company is ‘fairly valued’ right now, unless it can outperform analyst expectations.