McCormick Stock’s Secret Sauce

Have you noticed that, during the 2015 through 2019 stretch, McCormick has traded at an elevated valuation of approximately 25x earnings? From 1975 through 2014, the average P/E ratio of the stock was 18.7x earnings. The profit margins during the 1975 through 2014 stretch were 8.7%. During the 2015 through 2019 stretch, profit margins have improved to 12.1%. That is a staggering 39% increase in the amount of each dollar of revenue that flows through to shareholders as net profits.

McCormick stock is growing fast and licensing its trademarks, but a P/E ratio of 25 is going to diminish future returns for investors.

It is worth examining what McCormick is doing now that explains why its profit margins have increased substantially in the past four years after holding steady for four decades. After all, the business hasn’t changed–it is the manufacturer, market, and distributor of spices, seasonings, flavorings, mixes, condiments … Read the rest of this article!