Clorox Stock Struggling to Justify Valuation Ahead of Earnings

Year-over-year, CLX is down 8.5%

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The shares of Clorox Co (NYSE:CLX) are up 0.5% to trade at $180.71 today, as the company gears up for its fiscal second-quarter earnings report, due out after the close on Thursday, Feb. 3. The equity has been clawing higher since bouncing off an Oct. 19, annual low of $156.39, and is now pacing for its highest close since August, with support from its 20-day moving average. Year-over-year, though, Clorox stock is still down 8.5%.

CLX 20 Dya

The security has a history of mixed post-earnings reactions, finishing four of eight next-day sessions higher in the last two years, while the other half were lower. However, it did register a 9.5% dip in August. Clorox stock averaged a 4.2% move following its last eight reports, regardless of direction.

The brokerage bunch is pessimistic towards CLX, with all 13 analysts in coverage calling it a tepid "hold" or worse. What's more, the 12-month consensus target price of $163.91 is a 9.3% deficit to current levels.

While short sellers have started to hit the exits, bears are still in control. Short interest is down 16.2% in the last two reporting periods, but the 6.12 million shares sold short still account for 5% of the security's available float, or nearly one week's worth of pent-up buying power.

The options pits are firmly bullish. This is per CLX's 50-day call/put volume ratio of 3.32 over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than all other readings from the past year, indicating a strong preference for long calls recently. 

From a fundamental point of view, Clorox stock continues to be overvalued by most metrics. CLX is now trading at a sky-high price-earnings ratio of 51.84, as well as an inflated price-sales ratio of 2.94.

In addition, Clorox stock has a forward price-earnings ratio of 31.65, which suggests earnings growth is expected, but is also indicative of high valuation. Furthermore, CLX has a very weak balance sheet with $208 million in cash, and $3.16 billion in total debt, making it an unattractive short- and long-term play.

 

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