What a brutal six months it’s been for Kimberly-Clark. The stock has dropped 20.6% and now trades at $98.69, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Kimberly-Clark, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Kimberly-Clark Not Exciting?
Even though the stock has become cheaper, we're swiping left on Kimberly-Clark for now. Here are three reasons we avoid KMB 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 2.5% 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 fuel better top-line performance, it is still below the sector average.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Kimberly-Clark’s margin dropped by 5 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%.
Final Judgment
Kimberly-Clark isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 13× forward P/E (or $98.69 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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