Clorox stock price could form a death cross soon: buy the dip?

By:
on Sep 19, 2023
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  • Clorox share price is about to form a death cross pattern.
  • The company warned about product shortages because of a recent hack.
  • The stock will have some short-term volatility.

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Clorox (NYSE: CLX) stock price plunged to the lowest level since February as concerns about the company continued. The shares plunged to a low of $142.65 on Monday, 20% below the highest point this year, meaning it has moved to a bear market.

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Is this a good opportunity to buy CLX?

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Clorox is one of the leading companies in the FMCG industry. While it is well-known for its bleach, the company also makes other products. Its key segments are cleaning products, bags and wraps, food products, and car litter products. 

Clorox stock price plunged after the company warned about a data breach that it believes will have a negative impact on its business. It hinted that the cyberattack will lead to shortages and weak earnings.

The most recent financial results showed that Clorox’s business was doing well. Its net sales jumped by 12% to over $2 billion. This growth was mostly driven by the company’s price increases, which helped to offset low volume. 

Clorox also saw its gross margins expand by 560 basis points to 42.7% while the diluted net earnings per share rose by 75% to $1.42. Therefore, there is a likelihood that the cyberattack will disrupt the growth.

In its guidance, Clorox said that its net sales growth would be flat to 2% while its gross margin will jump by between 150 and 175 basis points. It sees its diluted EPS will be between $4.65 and $4.95.

Therefore, I believe that the current crisis makes Clorox more attractive for long-term investors. Historically, companies tend to recover after going through a major cyberattack. For example, Home Depot has thrived after a major cyberattack in 2014. The same is true for other companies like JP Morgan, LinkedIn, and Microsoft.

Further, companies have moved from worse crises than this. For example, Facebook went through a major crisis after the Cambridge Analytica scandal.

As such, I believe that Clorox stock price will go through bumps in the near term and then recover as these fears fade.

Clorox stock price forecast

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Clorox stock

Clorox chart by TradingView

The daily chart shows that the CLX share price has been in a strong bearish trend in the past few months. This sell-off happened after the stock formed a rising wedge pattern. In price action analysis, this pattern is one of the most accurate bearish signs. 

The Clorox stock price is about to form a death cross pattern when the 50-day and 200-day moving averages make a bearish crossover. Further, the Relative Strength Index (RSI) has moved to the oversold level.

Clorox shares have also dropped below the key support at $147.97, the lowest level on August 22nd. Therefore, the outlook for the stock is bearish for now. This could see it drop to the support at $135.33, the lowest level in January. In the long-term, however, Clorox will bounce back as investors buy the dip.

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