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3 Reasons Kimberly-Clark’s (NYSE:KMB) Stock could fall

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Kimberly-Clark (NYSE:KMB), the global consumer staple company is having an excellent year. With growing revenues and profits courtesy its strong brands such as Kleenex and Huggies, Kimberly-Clark (NYSE:KMB) registered solid gains this year. Thus, the general view is that the company would put up better gains in the times to come. However, like any other company in the world Kimberly-Clark (NYSE:KMB) is also vulnerable to any potential change which could deter this progress.

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While the effect of the changes would depend largely on the reaction of the company, here are three changes which could potentially threaten the growth of Kimberly-Clark (NYSE:KMB). The profit of the consumer products companies directly depends on the cost of production. With the rising cost of raw materials, the profit margin automatically shrinks. With the increased input costs, this effect is manifested in Kimberly-Clark (NYSE:KMB) but it is not apparent.

The reason it is not apparent is partly because the company has been aggressively cutting costs. Thus, the shares growth in the third quarter was steadily maintained at 5%. A further rise in the production cost may hurt the company’s stock prices because the company will reach a limit to its defensive measure. Ultimately, the company can either raise the product prices to maintain its profits or see their margins suffer.

Kimberly-Clark (NYSE:KMB) is a global company and this can be advantageous because the international markets are growing faster than the United States. But the very fact becomes a headwind when the U.S. dollar strengthens in value versus other currencies. As the value of a foreign currency drops as compare to the U.S. dollar, the international sales are converted into fewer U.S. dollars. Thus, in such a scenario, if the U.S. dollar keeps strengthening, Kimberly-Clark will be troubled to keep growing net sales at a satisfactory conversion clip.

Another reason why Kimberly-Clark’s stock could lose its growth is that it is aggressively valued. With the growth of the company looking modest, Kimberly-Clark (NYSE:KMB) holds a value which could entice selling. According to Thomson Reuters, Kimberly-Clark trades for about 20 times trailing earnings per share and 18 times forward EPS estimates. Both of these are equally lofty multiples.

However, since the company anticipates only mid-single digit earnings growth this year on a percentage basis, it would be certainly hard for Kimberly-Clark (NYSE:KMB)) to keep its valuation expanding. And, as a result, investors might be found unwilling to pay such a high multiple for the stock. Kimberly-Clark (NYSE:KMB), with its rising profits and growing revenues, is creating value for the shareholders which in fact explains why the stock has performed well over the past year.

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But before taking the decision to jump in and buy the stock, we ought to consider the downside scenarios. The rising cost inflation and a strengthening dollar are both threatening to deter the sales and profits of Kimberly-Clark (NYSE:KMB). With this effect, Kimberly-Clark may lose its steady growth, which would make its comparatively lofty valuation no longer appealing.

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