WD-40 (WDFC): Evaluating Valuation Following Notable Gains in Returns on Capital and Profitability

WD-40 (WDFC) is making waves among investors again, thanks to fresh attention on its strong returns on capital. The company has quietly outpaced its industry by achieving a 28% return on capital employed while also growing its capital base by more than a third over the past five years. For those watching operational efficiency and long-term value creation, this combination of solid returns and prudent reinvestment offers a compelling narrative that is not always common in consumer products.

These efficiency numbers come at a time when WD-40’s stock price performance remains mixed. Over the past year, shares have slipped by around 12%, and year-to-date momentum is still lagging. However, a nearly 6% gain in the last month hints at a potential shift in sentiment or perhaps growing recognition of the company’s underlying fundamentals. The longer-term record remains constructive, as the stock has delivered a 22% total return over three years and continued to generate reliable cash flow and profitability despite a competitive landscape and fluctuations in global demand.

So with operational strength on display and the stock price recovering in recent weeks, is this a point where the stock is trading below its intrinsic value, or is the market simply catching up to future growth?

Most Popular Narrative: 19.8% Undervalued

According to community narrative, WD-40 is seen as significantly undervalued based on future growth projections, strategic changes, and margin assumptions, with analysts setting a fair value above the current share price.

The company's focus on premiumization of products, with targets for a compound annual growth rate for premium products exceeding 10%, is expected to improve net margins by shifting the product mix toward higher-margin offerings. WD-40’s strategy to divest its less profitable home care and cleaning brands is expected to position the company as a higher-growth and higher gross margin enterprise. Once complete, this could ultimately boost operational margins and net margins.

Want to know the blueprint driving this bullish valuation? The secret behind the price target ties directly to some surprising expected shifts in margins and a bold growth strategy that reshapes how investors should see WD-40. Intrigued about which aggressive numbers shape these projections? The full narrative unpacks the pivotal assumptions fueling this valuation call.

Result: Fair Value of $277.5 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, challenges such as delays in divesting non-core brands or adverse currency movements could quickly undermine the bullish outlook for WD-40’s sustained margins and growth.

Find out about the key risks to this WD-40 narrative.

Another View: Priced High by Traditional Measures

Looking at things differently, WD-40 appears costly when compared to its industry, with its earnings valuation well above the sector average. Does the recent optimism overlook fundamental pricing concerns, or is there more to the story?

See what the numbers say about this price — find out in our valuation breakdown.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out WD-40 for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own WD-40 Narrative

If you want to take a different view, dive into the numbers yourself and assemble a personal take on WD-40’s outlook in just a few minutes. do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding WD-40.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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