The market as a whole could be overvalued, or depending on who you listen to, the market is still undervalued. Whatever the case, there are lots of individual stocks on the market that appear overvalued based on their own historic valuations and in relation to their peers.
Although it is difficult to decipher whether or not the market is overvalued, or indeed undervalued, it is possible to gauge to a certain degree how much value is in an individual stock based on its historic valuation. So, based on an average of historic price-to-earnings multiples taken every day for the last five years, here are three stocks that appear overvalued compared to their own historic valuations.
First up is Colgate-Palmolive Company (NYSE:CL). Colgate-Palmolive has been sought after for the past five or so years as investors look to the company to provide a source of calm in uncertain markets. However, this has now left the stock looking slightly overvalued. Indeed, over the past five years, Colgate-Palmolive Company (NYSE:CL) traded at an average trailing-12 month P/E of 20.3 but, the company now trades at a trailing-12 month P/E of 22.8, making it look about 12% overvalued.
Colgate-Palmolive Company (NYSE:CL)’s earnings yield is 4.2%, below the market average of 5.1% and signifying that the company is overvalued compared to the rest of the market.
Furthermore, Colgate-Palmolive Company (NYSE:CL) looks overvalued on other metrics. Compared to the rest of the sector, Colgate-Palmolive trades at a forward P/E of 18.7, compared to the sector average of 17. The company also trades at a price-to-sales ratio of 3.2 compared to the sector average of 1.9. Moreover, Colgate-Palmolive Company (NYSE:CL) trades at a price-to-book ratio of 31, more than three times greater than the sector average of 10.
Still, Colgate has under-performed the S&P 500 (INDEXSP:.INX) so far this, rising only 15% compared to the index’s 18.8%; but the stock has made most of its gains during the last two years.
Still, as a producer of the all essential toothpaste as well as other hygiene essentials, Colgate-Palmolive Company (NYSE:CL) is not going to see demand for its products fall any time soon. That said, Colgate’s growth is slow predicted to be 1% for this year. Moreover, Colgate’s debt has grown by 75% since 2010 and shareholder equity has fallen 20%, which is a worrying trend as eroding shareholder equity can destroy long- term shareholder value.
This candy maker looks too sweet
Second, Hershey Co (NYSE:HSY) , which has also been heavily sought after as investors seek safety in the defensive candy maker. However, right now the company looks overvalued on a historical basis. The company trades at a trailing-12 month P/E of 30 compared to its five-year average of 24, indicating that the company is overvalued by 25%.
Moreover, the company’s stock trades at a forward P/E ratio of 23 compared to the confectionery sector average of 17.2. Hershey Co (NYSE:HSY) also trades at a price-to-sales ratio of 3.1, which is 60% above that of its closest peers Mondelez International Inc (NASDAQ:MDLZ) and Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF), which trade at an average price-to-sales ratio of 1.9.