What a brutal six months it’s been for Kimberly-Clark. The stock has dropped 23.2% and now trades at $107.08, rattling many shareholders. This might have investors contemplating their next move.
Is there a buying opportunity in Kimberly-Clark, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Kimberly-Clark Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why KMB doesn't excite us and a stock we'd rather own.
1. 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 Kimberly-Clark’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 2.6% year on year. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Kimberly-Clark’s revenue to rise by 2.1%. While this projection indicates its newer products will catalyze better top-line performance, it is still below the sector average.
3. Free Cash Flow Margin Dropping
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.
As you can see below, Kimberly-Clark’s margin dropped by 6.3 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Kimberly-Clark’s free cash flow margin for the trailing 12 months was 10.2%.
Final Judgment
Kimberly-Clark isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 14× forward P/E (or $107.08 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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