Is now a good time to buy P&G stock?

• P&G shares have hit lows not seen in almost three years.
• The stock’s dividend yield is above 3.8 percent – near a 25-year high
• P&G’s premium valuation relative to the benchmark S&P Index has almost disappeared

Procter & Gamble’s stock is trading at the lowest price it’s been in nearly three years.

Annual profits were down 40 percent when the company posted results this summer. The consumer product giant’s massive sale of nearly 100 brands has yet to reboot growth. And in November, the company will welcome its third CEO tasked to revive its fortunes.

Is now the time to buy shares?

It’s not an absurd question, analysts say. It’s the classic investor goal: try to buy low to sell high later.

P&G’s turnaround is more than three years old and still has months to go. Massive divestitures of brands designed to refocus the company and simplify operations won’t close until next year. Meanwhile, late August’s market correction punished Procter along with most stocks.

Procter shares have hit their lowest price since the fall of 2012 and have fallen almost 27 percent from the all-time high they hit in December. But amid the carnage, analysts say opportunity may be arising.

Not only are P&G shares down, but its valuation compared to the S&P 500 is hovering at a multiyear low. Finally, the dividend yield (annual payments divided by the share price) is hovering at 3.8 percent – the highest range in nearly 25 years.

“For longer-term investors, it’s a really nice buying opportunity. A good company is on sale,” said Andy Stout, managing director of investments at Simply Money in Symmes Township. “(But) there may be more weakness in the short run as the broad stock market looks for (and eventually finds) a bottom.”

Stock watchers debate P&G’s risks versus reward

So why are P&G shares considered cheap?

The answer comes down to one word: growth. P&G has been trying to re-ignite sales growth for more than five years. The company’s total sales have been stuck around $80 billion since 2008.

P&G sought additional growth by expanding overseas, then tried boosted profits with cost-cutting. Then in the last year CEO A.G. Lafley has sought to refocus the company on core businesses by cutting deals to sell off nearly 100 brands that are slower growing.

But investors have grown impatient. Amid all the restructuring, P&G’s worldwide sales have slowed to 1 percent organic growth (which excludes acquisitions, divestitures and foreign exchange). The company also facing a worsening challenge in overseas markets.

Foreign economies are slowing down, dampening demand for P&G products. But also, foreign governments have devalued their currencies to try to goose economic growth – which results in unfavorable exchange rates that hit sales and profits P&G makes overseas, costing the company $4.6 billion last year.

Procter & Gamble’s stock closed Friday at $68.76, down 1.7 percent.

Meanwhile, Wall Street analysts say the stock could hit $83.75 within the next year. Among 16 pros that assigned a target price, the most pessimistic pegged shares as worth $78, while the most optimistic said shares are worth $96.

Analysts say P&G has real problems, but it’s remains a strong company – which turned a $7 billion profit on sales of $76.3 billion in the last fiscal year ended June 30.

“It’s still a quality, blue chip company – it’s just finding a path toward growth,” said Jeroen van Leersum, an analyst with Johnson Investment Counsel in Monfort Heights.

Leon Loewenstine, managing director and chief investment strategist at Riverpoint Capital Management in Downtown, said P&G’s struggle to grow remains a sticking point. He doesn’t think P&G will drop too much lower, but he doesn’t see it reaching new heights any time soon, either.

“There is not enough upside to the stock at this point without more clarity on some of the issues,” Loewenstine said. “We still do not consider the stock overly attractive at this point in time as the company continues to struggle... We expect P&G to continue to be impacted negatively by a strong U.S. dollar and weak emerging market economies.”

Still, he said his firm would be “aggressive buyers” of the stock if share dropped into the low $60 range.

What investors expect: steady profits, growth

So what do investors want from P&G?

Because the P&G’s sales are so large, investors don’t expect it to grow as fast as some tech startup or hip new restaurant chain. But there are expectations: investors want it turn a steady profit and grow sales by healthy single digits.

Outgoing CEO Lafley became a Wall Street darling during his initial 2000 to 2009 tenure when the company achieved an average 5 percent organic sales growth.

While organic sales have not reached those levels in recent years, P&G has still commanded a premium price to the overall market of stocks on the S&P 500. But that premium has eroded in recent weeks.

Stocks’ values are commonly evaluated in terms of a multiple of annual earnings per share divided by the latest stock price. Excluding one-time items, P&G earned $4.02 per share, which means the stock closed at 17.1 times annual earnings – just above the 16.95 multiple for the S&P 500.

That could be a sign the stock has been oversold.

“Today, it’s cheaper to buy $1 of (P&G) earnings that what it usually is,” Stout said. “P&G is currently trading with a price/earnings (P/E) ratio of 17 – for perspective, it was trading at 22 at the beginning of the year when it was priced for perfection. The company’s 10-year average P/E is 19.3.”

But other experts say P&G needs a little something more to justify jumping in.

Loewenstine said he’d give P&G another look if organic sales picked up or overseas economies turned around. Beyond that, more drastic measures that might make him relook would be if an activist investor began shaking things up, the company suddenly decided to bring in an outside CEO, the company made a major acquisition or decided to split apart.