Common Sense Investing Part 6: Case Study

Here we will be analyzing Colgate Palmolive through each of the 4 parameters discussed earlier .

Rule 1: Does Colgate Produce a Product which will have continued and rising demand?

Yes, Colgate Does Produce Oral Care products from 1873 and it is expected to produce the same for many decades as technology cannot change the demand for toothpaste.

Rule 2: Does Colgate produce a product which is non-durable and rapidity of turnover is high.

Colgate does produce oral care products which re non-durable and the durability comes down when consumed more which increases the demand too.

Rule 3: Is Colgate a Durable competitive business with economic moat?

Colgate belongs to a sector of healthcare which is a durable competitive sector, the consumers do buy the products based on the quality of the product offered by the company.

Colgate does have an economic moat, having more than 55% market share in India, colgate has a good brand name, trust and goodwill which has developed a moat for colgate which helps it to keep it away from the competition.

Rule 4: Financials of Colgate:

Breaking down the financials of Colgate Palmolive India.

Sales: the sales of Colgate India in 2006 was 1072 crores, where as in 2015 Colgate manages to sell products worth over 4000 crores. Over a period of 10 years colgate has managed to increase its sales by 363%, This indicates that colgate has consistent demand for the product.

PAT: The profit grown from 140 crores in 2006 to over 550 crores in 2015, growing over 392%, The sales of colgate has gone by 360% whereas the PAT has gone up by 390% indicating that the company has managed to either cut down the cost or improve its profit margins.

Net Profit Margins: In 2006 the Net Profit Margins stood at 12.6% whereas in 2015 the profit margins are at 14.5%, Colgate has managed to maintain an average margin of 15.7% over the years. Therefore, when it comes to Margins, Colgate has able to maintain consistent margins without any reasonable contraction.

Debt to Equity Ratio: Colgate is a company with zero debt on its balance sheet, Hence the debt to equity ratio of the company 0, which is as low as it can get, with company having to pay no interest on its debts, it does have its impact on the profitability of the company.

Return on Equity: ROE for Colgate in 2006 was 52.09% where in 2015 the ROE has expanded to 89.5% this is a indication that the company has very good fundamentals.

All these aspects put together gets reflected in the stock price of Colgate which has surged over 9700%

Video Explanation