WD 40 CO (WDFC) stock intrinsic value fair value estimate & owner earnings analysis

WD-40 Company sells one of the best-known brands in the world: the blue-and-yellow can of WD-40 Multi-Use Product. In fiscal 2025 (year ended August 31, 2025) that one product brought in $478 million of the company's $620 million in sales. WD-40 Specialist added $82 million, other maintenance brands such as 3-IN-ONE and GT85 added $31 million, and homecare and cleaning brands added about $29 million. The company is selling those homecare brands. The UK and European ones were sold in the fourth quarter of fiscal 2025, and the Americas brands (such as 2000 Flushes, Spot Shot, X-14 and Carpet Fresh) are held for sale. The homecare brands in Asia-Pacific, such as Solvol in Australia, are being kept. About 66% of sales are made outside the United States: the Americas segment is 47% of sales, Europe/India/Middle East/Africa 38% and Asia-Pacific 15%. No customer reaches 10% of sales. Third-party contract packagers make the products, so the business needs very little capital. Capital spending has been $4–20 million a year against $380–620 million of sales. Owner earnings. We start from operating cash flow and take out working-capital swings, stock-based compensation and the capital spending needed to maintain the business. Most of the capital spending counts as maintenance, because the business is asset-light. We also subtract two items the cash-flow statement adds back: inventory write-offs and the amortization of capitalized cloud-computing (ERP) costs. Their cash cost passes through the working-capital lines we strip out, so without this step neither cost would ever be charged. Fiscal 2025 net income of $91.0 million included an $11.9 million one-time, non-cash benefit from releasing an uncertain tax position. Because we build from cash flow, that benefit is excluded. On this basis, owner earnings per diluted share were $3.59 (FY2016), $2.92 (2017, a year of heavy capital spending), $3.85, $3.70, $3.56, $4.53, $5.08 (2022), $4.78, $5.55 and $6.23 (FY2025). In fiscal 2022 operating cash flow fell to just $2.6 million. That came from an $81 million working-capital build, mostly inventory stockpiled during the global freight and supply disruptions, and it reversed in fiscal 2023. It was a timing effect, not lost earning power. The underlying hit that year was a fall in gross margin from 54% to 49% as oil-based inputs, cans and freight rose faster than prices. Price increases brought gross margin back to 55% by fiscal 2025. Starting point. Each case values the business before its lenders and then subtracts the debt, so we add back cash interest of roughly $0.26–0.41 a share. That gives business cash flow of $5.19, $5.88 and $6.49 per share for fiscal 2023–2025. We anchor on $5.88, the median of those three years. We judge that this window reflects the company as it is now, with post-inflation pricing restored and supply chains normalized. Fiscal 2021 was lifted by pandemic-era demand and fiscal 2022 was hit by the input-cost spike, so neither describes today's business. The anchor sits below the fiscal 2025 figure, and it is not lifted for the strong first nine months of fiscal 2026. In those nine months sales rose 12% to $511 million and operating income rose 19% to $90 million, which supports the starting point but does not raise it. Business cash flow grew 10% in fiscal 2025. The base case assumes only 4% in year one. Growth credited. WD-40 has grown the same way for decades. It takes the Multi-Use Product into new countries, often converting distributor markets to direct sales (for example, it bought its Brazilian distributor in fiscal 2024), and it raises prices, funding everything from its own cash in small steps. From fiscal 2016 to 2025 sales grew about 5.6% a year and business cash flow per share about 6.4% a year. Over a longer stretch, which includes four flat years in fiscal 2014–2017 when the dollar was strong, sales growth was closer to 4–4.5% a year. We credit growth at or below that record. We give no credit to management's long-range targets, to margin expansion beyond levels already reached, or to new product categories. Base case: about $183 per share. Business cash flow grows 4% a year for ten years, then 3% a year for the next ten, then 2% a year after that. The evidence for continuing growth is structural. The brand has kept its position since the 1950s, the formula is a protected trade secret, the product is used up and rebought, and the company showed in 2022–2023 that it can pass rising costs on to customers. On this path the business is worth about $2.53 billion. It owes about $57 million net (explained below), leaving about $2.47 billion, or roughly $183 per share. Bear case: about $97 per share. Year one drops 2% as the remaining homecare brands are sold. Underlying growth is then held to 2% a year. The case includes one full recession like 2008–2009, when WD-40's sales fell by a high single-digit percentage, modelled here more harshly as a 15% fall in business cash flow with a three-year recovery. It also includes a second input-cost squeeze like 2022, a 12% hit recovered over two years, which allows for the April 2025 US tariffs on imported inputs and cans that the company discloses. After ten years growth slows to 1% a year, and after twenty years it stops in nominal terms, a real decline that allows for private-label competition and the company's dependence on a single flagship product. The business is then worth about $1.36 billion. Less $57 million of net debt, that leaves about $1.30 billion, or roughly $97 per share. Bull case: about $265 per share. The case starts from the $6.49 already earned in fiscal 2025 and grows 5.5% a year for ten years. That is close to the 2016–2025 record, with direct-market conversions, premium formats and WD-40 Specialist all continuing to work. Growth then runs at 4% a year for the next ten years and 2.5% after that. The business is worth about $3.63 billion, less $57 million of net debt, or roughly $265 per share. Debt. At May 31, 2026 borrowings were about $100.7 million: a revolving credit line due April 2029, plus fixed-rate notes at 3.39% (amortizing through 2032), 2.50% (due November 2027) and 2.69% (due November 2030). Cash was $59.1 million. We treat about $20 million of that cash as needed to run the business and count the rest against the debt. Because the notes carry interest well below what new debt would cost, we reduce the debt figure by about $4.9 million. Net debt is therefore about $57 million, or roughly $4.20 per share. Cash interest of about $3.5–5.5 million a year is tiny next to roughly $80–90 million of annual business cash flow, so every case easily carries its debt and no maturity is a threat. What could make this wrong. The first risk is concentration: most of the profit depends on one product made by outside packagers, using petroleum-based ingredients and aerosol cans whose costs can jump, as they did in 2022. The second is that two-thirds of sales are abroad, so a strong dollar can flatten reported growth for years, as it did in 2014–2017. The third is valuation sensitivity: most of the value rests on the brand still earning, and growing modestly, decades from now. If growth runs at 2% instead of 4%, the shares are worth closer to the bear case than the base case. Our previous estimate was prepared on a different basis and is not comparable to these figures. Margin-of-safety price: $105. We are fairly sure of the earnings level. Over ten years, owner earnings never fell by more than about a fifth in any year, and the only such drop (2017) came from a burst of capital spending, not lost sales. The worst plausible event is a deep recession and a cost spike at the same time, or a competitor copying the formula. The structure would survive either: gross debt of about $100 million is roughly one year of cash flow and net debt well under one year, there is no controlling owner, no regulator sets prices and no single customer matters. If we are wrong about growth (2% rather than 4%) and margins slip back toward fiscal 2023's 51%, the shares are worth somewhere around $105–140. The business pays about $3.70 a share in dividends (fiscal 2025) over the holding period, and buys back a little stock. At $105, normalized cash earnings equal roughly 5.6% of the price each year, and that cash has grown about 6% a year over the past decade. A 20% annual return over a four-to-five-year holding period would then require the price to move toward the base-case value. The bear case, from $105, implies a positive return rather than a permanent loss. Above that level, the narrow but real chance of slower growth plus a downturn would leave too little margin for the 20% goal.