Colgate-Palmolive is a global leader in consumer goods, specializing in oral care, personal care, home care, and pet nutrition. With a strong brand presence, a history of consistent profitability, and a focus on innovation, the company has built a durable competitive advantage in essential consumer products. As demand for premium oral care, science-backed skincare, and high-quality pet nutrition continues to grow, Colgate-Palmolive is well-positioned for long-term expansion. The question remains: Should this household staple have a place in your portfolio?
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The Business
Colgate-Palmolive was founded in 1806 in New York City and has grown from a small starch, soap, and candle manufacturer into a global leader in consumer products. The company operates in four key segments: oral care, pet nutrition, personal care, and home care. Oral care is the largest segment, accounting for 43% of net sales, and includes market-leading toothpastes, manual toothbrushes, and mouthwashes under brands like Colgate, Darlie, Elmex, Hello, Meridol, Sorriso, and Tom’s of Maine. Pet nutrition, which makes up 22% of net sales, is led by the Hill’s brand, offering specialty pet foods for both everyday and therapeutic needs. Personal care contributes 18% of net sales and includes liquid hand soaps, bar soaps, deodorants, body washes, and skincare under brands such as Palmolive, Softsoap, Irish Spring, Protex, Sanex, and EltaMD. Home care, representing 17% of net sales, covers dishwashing liquids, household cleaners, and fabric conditioners under Ajax, Axion, Fabuloso, Murphy, Palmolive, Suavitel, and Soupline. With a global presence and diversified sales across regions, Colgate-Palmolive benefits from strong brand recognition and consumer trust, particularly in emerging markets. Colgate-Palmolive has a strong moat built on its brand power, market leadership, geographic reach, and continuous innovation. Colgate is the second most chosen brand globally after Coca-Cola, according to Kantar’s Brand Footprint 2024, and is the only brand purchased by more than half of all households worldwide, with a 60.5% penetration rate. This reflects a deep level of consumer trust and habitual purchasing behavior. The company holds the number one position globally in toothpaste, manual toothbrushes, and liquid hand soap, reinforcing its dominance in personal hygiene and household essentials. It also has a significant market share in mouthwash, bar soap, body cleansing, liquid fabric conditioners, and hand dishwashing products. As a provider of essential consumer goods, Colgate-Palmolive benefits from consistent demand, making its business model resilient to economic downturns. Its strong brand loyalty allows it to sustain pricing power, particularly in premium categories such as skincare, natural oral care, and therapeutic pet food. Continuous investment in research and development drives innovation across its product lines, from sustainable oral care brands like Tom’s of Maine and Hello to premium skincare offerings under EltaMD, Filorga, and PCA SKIN.
Management
Noel Wallace serves as the CEO of Colgate-Palmolive, a position he has held since 2019. He first joined the company in 1987 and has since held a variety of leadership roles across different segments and geographies. Before becoming CEO, he served as Chief Operating Officer and President, overseeing Global Innovation & Growth and leading Hill’s Pet Nutrition, the company’s fastest-growing segment. Earlier in his career, he held leadership roles in Colgate North America and Latin America, gaining extensive experience in brand management, operations, and global strategy. Under his leadership, Colgate-Palmolive has maintained its position as the global leader in toothpaste and manual toothbrushes while expanding in high-growth areas such as premium skincare and pet nutrition. Despite challenges such as the COVID-19 pandemic and macroeconomic headwinds, the company has delivered consistent revenue growth, driven by strong execution and strategic acquisitions. One of Noel Wallace’s key initiatives was acquiring three dry pet food manufacturing plants from Red Collar Pet Foods to strengthen Hill’s Pet Nutrition’s production capabilities, reinforcing Colgate-Palmolive’s position in specialty pet food. Noel Wallace has also championed sustainability and innovation. He has led efforts to introduce recyclable toothpaste tubes and expand Colgate-Palmolive’s environmental initiatives, including water conservation campaigns and commitments to reducing plastic waste. These efforts align with changing consumer preferences and regulatory trends, helping to future-proof the company’s product portfolio. Noel Wallace has earned strong support from employees, holding a CEO rating of 78/100 on Comparably, placing him in the top 10% of similarly sized companies. His leadership has been particularly tested during times of economic uncertainty, yet Colgate-Palmolive has continued to adapt and expand into new categories while maintaining its dominance in core markets. I believe Noel Wallace is the right person to lead Colgate-Palmolive due to his deep company expertise, strategic focus on high-growth categories, and ability to navigate challenging macroeconomic conditions while driving long-term value creation.
The Numbers
The first number we will investigate is the return on invested capital, also known as ROIC. We require a 10-year history where all figures exceed 10% annually. Colgate-Palmolive has consistently delivered a high ROIC over the past decade, demonstrating strong capital efficiency. The only year in which ROIC fell below 20% was in 2022, a particularly challenging period for most companies due to macroeconomic factors. However, Colgate-Palmolive rebounded strongly, achieving its second-highest ROIC in the past decade in 2024, and the highest since 2016. Management has emphasized ROIC as a key performance metric, reinforcing its commitment to using shareholder capital efficiently. I appreciate this focus, as I value leadership that prioritizes ROIC in capital allocation decisions. Leadership remains focused on investing selectively to generate the best returns, prioritizing reinvestment in the business to drive both efficiency and top-line growth. This disciplined approach to capital allocation has helped Colgate-Palmolive sustain its position as a high-return business.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it moving forward. As you are accustomed to seeing numbers in percentage form, I have decided to share both the actual numbers and the year-over-year percentage growth. Colgate-Palmolive frequently makes acquisitions and divestitures, which makes me hesitant to place too much emphasis on equity growth alone. Since 2020, equity has remained relatively stable, increasing in 2023 before dropping to its lowest point since 2019 in 2024. While I would prefer to see equity growth, I do not view this as a major concern, as Colgate-Palmolive maintains a strong financial position.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Colgate-Palmolive has delivered positive free cash flow every year for the past decade. It is especially encouraging that the company achieved its highest free cash flow ever in 2024. Management has stated that they will continue focusing on strong free cash flow generation. While one of their capital allocation priorities is high ROIC reinvestment to drive both efficiency and top-line growth, they have also emphasized their commitment to share repurchases and dividends. As a result, the company has been able to increase both buybacks and dividend payments. The levered free cash flow margin has also risen and is currently at its third-highest level in the past decade, and the highest since 2020, which is another positive indicator. Meanwhile, the free cash flow yield has reached its highest level in the past decade, suggesting that Colgate-Palmolive is trading at an attractive valuation. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to investigate is the level of debt, specifically whether a business has manageable debt that can be paid off within a period of three years. This is determined by dividing total long-term debt by earnings. Based on Colgate-Palmolive’s financials, the company currently has 2,25 years of earnings in debt, which falls below the three-year threshold. As a result, debt is not a concern for me when considering an investment in Colgate-Palmolive. There have been years when the company’s debt exceeded three years of earnings, primarily due to acquisitions, but Colgate-Palmolive has consistently prioritized debt repayment. Given this track record, even if the debt-to-earnings ratio rises in the future, it would not be a significant concern for me.
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Risks
Competition is a key risk for Colgate-Palmolive due to increasing pressures from both multinational corporations and local players. While the company holds leading market positions in several categories, it operates in a highly contested industry where pricing, innovation, and digital engagement play critical roles in sustaining growth. One of the most immediate challenges comes from intensified price competition. According to management, certain manufacturers, particularly local players, have been aggressively discounting products to drive volume. This has been especially evident in markets like India, where heightened competitive activity in urban areas, particularly in modern trade channels, has led to increased price-cutting efforts. If this trend continues, Colgate-Palmolive may be forced to either lower prices, which could pressure margins, or risk losing volume to more aggressive competitors. The rise of e-commerce and digital-first brands has further intensified competitive pressures. Online platforms provide smaller brands and private-label competitors with greater access to consumers, lowering barriers to entry. Digital-first companies can scale rapidly through targeted marketing, influencer partnerships, and direct-to-consumer models, bypassing traditional retail distribution. To remain competitive, Colgate-Palmolive must continuously refine its digital strategies and e-commerce presence. Innovation and shifting consumer preferences present additional challenges. Consumers are increasingly drawn to natural, sustainable, and premium oral and personal care products, and competitors that respond more quickly to these trends could gain market share. If Colgate-Palmolive does not keep pace with these competitive dynamics - whether in pricing strategies, product innovation, or digital transformation - it risks market share erosion, margin compression, and weaker financial performance over time.
Colgate-Palmolive's increasing dependence on major retailers in developed markets presents a significant risk due to several interconnected factors, including retailer bargaining power, shifting retail dynamics, and pricing pressures. While the company benefits from strong brand equity and global distribution, the consolidation of large-format retailers, the expansion of eCommerce, and the rise of alternative retail channels have created challenges that could impact its profitability and market positioning. One of the primary risks is the growing bargaining power of large retailers. As the retail sector consolidates, a handful of key players, including Walmart, Amazon, and major supermarket chains, exert increasing influence over suppliers like Colgate-Palmolive. These retailers use their leverage to demand higher trade discounts, slotting fees, promotional allowances, and greater investment in digital marketing initiatives such as paid search and co-op advertising. This puts pressure on Colgate-Palmolive’s margins, as the company must allocate more resources to secure shelf space and maintain visibility both in stores and online. If it is unable to meet these demands or negotiate favorable terms, it risks reduced profitability and potential loss of shelf space, which could hurt sales in key markets. Retailers are also increasingly prioritizing private-label products, which are typically sold at lower prices than branded alternatives. As consumer preferences shift and price sensitivity rises, particularly during periods of economic uncertainty, private-label competition could erode Colgate-Palmolive’s market share. If retailers allocate more shelf space and promotional support to their own brands, Colgate-Palmolive may struggle to maintain its leadership position.
Damage to Colgate-Palmolive’s reputation poses a significant risk due to the company's reliance on consumer trust, brand loyalty, and partnerships with major retailers. As a widely recognized provider of household and personal care products, any loss of confidence in its brand could lead to declining sales, reduced market share, and higher costs to restore its image. One major risk stems from negative publicity, whether related to product safety concerns, health issues, or quality control failures. Even if claims about harmful ingredients or safety risks are later proven false, consumer perception can still be affected. Declining demand, lawsuits, and regulatory scrutiny are all potential consequences, especially in an industry where brand trust plays a crucial role in purchasing decisions. The competitive nature of the market means that negative press can quickly drive consumers toward private-label or premium alternatives. The rapid spread of information through digital and social media has made reputational risks more immediate and difficult to control. Misinformation, viral negative publicity, or consumer backlash on social platforms can quickly damage the company's image before it has an opportunity to respond effectively. A single incident - whether a misleading marketing claim, an ethical controversy, or a product quality issue - can escalate rapidly, leading to long-term brand erosion. The presence of counterfeit Colgate-Palmolive products in global markets further threatens its reputation. Consumers who unknowingly purchase inferior or unsafe counterfeit products may associate those negative experiences with the real brand, diminishing trust. Addressing counterfeiting requires legal and financial resources, adding another layer of complexity to maintaining brand integrity.
Reasons to invest
The growth in toothpaste use presents a compelling long-term investment opportunity for Colgate-Palmolive, driven by increasing oral hygiene awareness, rising disposable incomes, and an expanding middle class in key emerging markets. While toothpaste is not traditionally viewed as a high-growth category, the low frequency of brushing in many regions, particularly in developing economies, suggests significant room for expansion. Currently, an estimated 68 percent of the world’s population brushes their teeth less than once a day, highlighting the untapped potential for increased oral care adoption. As global incomes rise and living standards improve, particularly in China and India, more consumers are likely to develop consistent dental hygiene habits, driving demand for toothpaste and oral care products. Management has identified these two markets as strategic growth opportunities, with projections showing that by 2030, China will add 300 million new middle-class consumers, while India is expected to add 600 to 700 million. As disposable incomes increase, more consumers are likely to shift toward branded personal care products, creating a strong tailwind for Colgate-Palmolive, which already holds a leading market position in both toothpaste and manual toothbrushes. The company has also been gaining global market share in oral care, and management expects this trend to continue through at least 2025. In China, approximately five out of ten people brush their teeth once a day, while in India, the figure is six out of ten. These numbers suggest substantial room for growth as oral hygiene awareness increases through government initiatives, marketing campaigns, and improved access to healthcare education. Additionally, as consumers become more brand-conscious and seek premium oral care solutions, Colgate-Palmolive is well-positioned to expand its product portfolio in these high-growth regions.
Hill’s Pet Nutrition presents a strong long-term growth opportunity for Colgate-Palmolive, driven by increasing consumer awareness of science-based, premium pet nutrition, strategic market expansion, and improving profitability. While the broader pet food industry has experienced a temporary slowdown, Hill’s has continued to gain market share and outperform competitors in a largely flat category, demonstrating its resilience and growth potential. One of the key factors behind Hill’s growth potential is its underpenetration in the pet nutrition market. Management believes the brand has significant room to expand, particularly in the therapeutic nutrition segment, which is endorsed by veterinarians. Currently, only 5 percent of pet owners use therapeutic nutrition, while management estimates that 80 percent of pets could benefit from it. This suggests a substantial untapped market that Hill’s can address by increasing brand awareness and strengthening its relationship with veterinarians, who play a crucial role in influencing pet owners' purchasing decisions. Colgate-Palmolive has been investing heavily in Hill’s to drive long-term sustainable growth. The company has prioritized advertising and product innovation to reinforce Hill’s position as a leader in premium pet nutrition. Additionally, Hill’s has identified key high-growth areas, including small dog nutrition, wet pet food, and prescription diet products, all of which command higher average selling prices and stronger margins. By focusing on these premium, high-margin segments, Hill’s is well-positioned to drive both revenue growth and profitability. Looking ahead, Hill’s is expanding its presence both in the United States and internationally, with an emphasis on underpenetrated markets and high-growth pet care segments. While the overall pet food category remains stable, management expects the science-based, premium pet nutrition segment to be the fastest-growing part of the industry, positioning Hill’s to capitalize on this trend.
Innovation has become a key growth driver for Colgate-Palmolive, with the incremental sales contribution from new products increasing by 45 percent from 2021 to 2024. The company has demonstrated a strong commitment to research and development across multiple product categories, reinforcing its ability to drive both top-line growth and margin expansion. A central focus of Colgate-Palmolive’s innovation strategy is the relaunch of Colgate Total, featuring a new toothpaste formula, manual toothbrushes, and mouthwash. The company is prioritizing prevention, a key consumer trend in oral care, by introducing a significantly improved formulation. The initial launch in Latin America has been highly successful, delivering strong share growth, and the rollout is now expanding across Asia, North America, and Europe. The enhanced science-backed formulations, regimen-based claims, and improved product benefits are expected to drive further market penetration and reinforce Colgate’s leadership in oral care. Beyond oral care, Colgate-Palmolive is leveraging innovation to expand into high-growth categories such as skincare and sun care. The company has introduced new science-driven skincare products under PCA SKIN, Filorga, and EltaMD, targeting anti-aging, eye treatment, and sun protection. These brands focus on premium, clinically tested solutions, appealing to consumers willing to invest in high-performance skincare. Colgate-Palmolive has also reoriented its incentive structure to focus on incremental innovation, ensuring that new product launches contribute meaningfully to revenue and category expansion rather than being introduced purely for the sake of innovation. This disciplined approach has resulted in a strong innovation pipeline, with significant product upgrades expected across oral care, skincare, home care, and pet nutrition in 2025 and beyond. With innovation driving both sales growth and improved margins, Colgate-Palmolive is well-positioned to enhance its competitive advantage and sustain long-term growth.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,51, which is from the year 2024. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by 7% in the next five years. Additionally, I have selected a projected future P/E ratio of 14, which is double the growth rate. This decision is based on Colgate-Palmolive's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $23,89. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Colgate-Palmolive at a price of $11,95 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 4.107, and capital expenditures were 561. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 393 in our calculations. The tax provision was 907. We have 812,6 outstanding shares. Hence, the calculation will be as follows: (4.107 – 393 + 907) / 812,6 x 10 = $56,87 in Ten Cap price.
The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Colgate-Palmolive's free cash flow per share at $4,34 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is $47,64.
Conclusion
I believe Colgate-Palmolive is an intriguing company with the potential to thrive in any economic climate due to its essential consumer products. It has a strong global brand presence, being found in more households than any other brand except Coca-Cola. I also have confidence in management, as Colgate-Palmolive has consistently delivered a high return on invested capital, achieving its highest ROIC since 2016 in 2024. The company also reported its highest free cash flow ever in 2024, enabling investments in future growth while increasing share buybacks and dividends, all of which should benefit investors. Competition remains a risk due to aggressive price discounting, particularly in markets like India, and the rise of e-commerce and digital-first brands, which intensify pricing pressures. The company's reliance on major retailers also presents a challenge, as consolidation strengthens retailer bargaining power while private-label competition threatens market share. Additionally, Colgate-Palmolive's reputation is critical to consumer trust and sales, making it vulnerable to negative publicity, product safety concerns, and counterfeit goods. The rapid spread of misinformation and social media backlash can amplify these risks, leading to declining demand, regulatory scrutiny, and costly efforts to restore its image. Despite these challenges, Colgate-Palmolive has strong growth opportunities. Rising incomes and increasing oral hygiene awareness in emerging markets, particularly in China and India, are driving greater toothpaste adoption. Hill’s Pet Nutrition also offers significant potential as demand for premium pet food grows, especially in underpenetrated markets. The company's focus on innovation, including the Colgate Total relaunch and advancements in science-backed skincare, is strengthening its market position and long-term growth prospects. I believe that buying shares at the Ten Cap price of $56 would be a solid long-term investment with growing dividends.
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