P&G Takes Lead as Value Stock Over Colgate-Palmolive

Procter & Gamble (PG) appears to be the clear value winner compared to its rival Colgate-Palmolive (CL), at least based on traditional multiples. According to data from Investing.com, PG trades at a P/E ratio of 21.4x, while CL's is significantly higher at 35.3x. Furthermore, PG's fair-value model suggests that it has more upside potential, with an implied fair value of $158.47, compared to CL's $91.70.

The data also shows that PG's valuation gap is significant across various metrics, including P/E, EV/EBITDA, and Price-to-Book (P/B). However, it's worth noting that Colgate's P/B ratio is distorted due to a near-zero book equity base, which investors should treat with caution.

In terms of margins, CL commands a higher gross margin of around 60%, but this does not translate into net income. In fact, PG's net margin of 18.4% dwarfs CL's 10.5%, primarily due to its massive scale and operating leverage. Moreover, PG has delivered five consecutive years of net income above $14B, while CL's net income swung from $2.89B in FY2024 down to $2.13B in FY2025, a drop of 26%.

The pairs trade between the two companies has already moved significantly, with PG up 10.6% over the past year and CL down 5.8%, resulting in a performance spread of around 16.4 percentage points. While this divergence may suggest that mean reversion is partly priced in, investors still have to consider whether the spread overshoots or continues to widen.