WD-40's Resilient Growth and Strong ROIC Signal Undervaluation Opportunity

WD-40 Company (WDFC) delivered a resilient Q3 2025 performance, narrowing its full-year net sales guidance to 6-9% growth while maintaining its status as a capital-efficient, dividend-paying stalwart. Despite headwinds like foreign currency headwinds and a strategic pivot away from non-core brands, the company's focus on its maintenance products—key to a decade-long 6% compound annual growth rate (CAGR)—and its robust return on invested capital (ROIC) of 26% suggest the stock is undervalued at current levels. Investors should view recent dips as a strategic entry point for long-term positions.

Sustained Growth Drivers: Maintenance Products Power Ahead

The company's core maintenance products—accounting for 96% of sales—grew 2% in Q3, driven by strong performance in the U.S. and Asia-Pacific, particularly China. Over the past decade, maintenance products have delivered a 6% CAGR, a testament to their global utility and brand loyalty. The decision to divest its struggling Homecare & Cleaning Products (HCCP) segment—down 17% in Q3—will free up capital and focus resources on its high-margin, growth-oriented core. While HCCP sales represented just 4% of total revenue, their elimination could reduce annual sales by $20 million but improve operating margins by $6 million. This strategic shift underscores management's commitment to prioritizing profitability over scale.

ROIC: A Beacon of Capital Efficiency

WD-40's ROIC of 26%—calculated as net operating profit after tax divided by invested capital—places it among the most capital-efficient companies in its sector. This metric reflects the company's ability to generate high returns with minimal capital investment, a critical advantage in an era of rising interest rates. A would likely show consistency, reinforcing its operational discipline. By contrast, peers in consumer discretionary goods often struggle with ROIC below 15%, making WD-40's performance standout.

Valuation: Undervalued Amid Dip

At $229.82 per share, WD-40 trades at a 25x trailing P/E ratio, below its five-year average of 28x. Analysts project a 12-month target price of $296, implying a 28.8% upside, with consensus EPS estimates at $5.54 for FY2025. The company's dividend yield of 1.7%—backed by a 12-18% EPS growth forecast—is further supported by its $50 million share repurchase program, which has $32.2 million remaining. These shareholder-friendly policies, combined with a strengthened balance sheet ($51.7M in cash), suggest the stock is pricing in risks that may not materialize.

Risks and Mitigants

Foreign currency fluctuations and supply chain disruptions remain risks. The company noted a $1.6M currency impact in Q3, with EIMEA sales declining 5% due to weakness in Turkey and the Middle East. However, the Americas (up 4%) and Asia-Pacific (7% growth) offset these challenges, demonstrating geographic diversification. The HCCP divestiture's success is also key—failure to offload these assets could add $20M in sales but dilute margins. Management's track record of executing similar moves, however, suggests confidence in a smooth transition.

Conclusion: Buy the Dip, Play the Long Game

WD-40's narrowing sales guidance reflects cautious optimism rather than weakness. Its maintenance product CAGR, ROIC, and dividend resilience make it a compelling hold for long-term investors. With shares down from recent highs and a robust analyst target, the current dip presents an opportunity to establish or add to positions. While risks exist, the company's focus on profitability and capital returns positions it to outperform in both expansionary and defensive markets.

would highlight its relative stability, reinforcing its "buy" thesis for patient investors.