P&G vs Colgate: Valuation Gap Widens as Pairs Trade Favors Procter & Gamble

Procter & Gamble (PG) appears to be the value winner in its valuation multiples, trading at 21.4x earnings compared to Colgate's 35.3x. However, a closer look reveals that P&G has already benefited significantly from the pairs trade over the past year, with Colgate up 10.6% and P&G down 5.8%, resulting in a 16-point spread.

This gap is critical for traders initiating or adding to a long-PG / short-CL pair. Valuation strongly favors P&G, which is cheaper on both P/E and EV/EBITDA multiples, with more upside potential at an implied fair value of $158.47 compared to Colgate's $91.70.

Furthermore, earnings quality also favors P&G, as the company has delivered five consecutive years of net income above $14B, whereas Colgate's net income swung from $2.89B in FY2024 to $2.13B in FY2025 - a 26% drop that explains the negative PEG ratio.

The divergent performance of the classic staples pair is also noteworthy, with Colgate rerating higher despite declining earnings due to its high dividend yield acting as a bond proxy in a rate-sensitive environment. In contrast, P&G has sold off despite superior fundamentals.