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In a sliding market, Philip Morris has defied the odds, trading up to $173.20 per share. Its 33.2% gain since November 2024 has outpaced the S&P 500’s 2.1% drop. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is PM a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive On Philip Morris?
Founded in 1847, Philip Morris International (NYSE:PM) manufactures and sells a wide range of tobacco and nicotine-containing products, including cigarettes, heated tobacco products, and oral nicotine pouches.
1. Rising Sales Volumes Show Elevated Demand
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Philip Morris’s average quarterly volume growth was a healthy 3% over the last two years. This is pleasing because it shows consumers are purchasing more of its products.
2. Elite Gross Margin Powers Best-In-Class Business Model
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.
Philip Morris has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 64.8% gross margin over the last two years. That means for every $100 in revenue, only $35.23 went towards paying for raw materials, production of goods, transportation, and distribution.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Philip Morris has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 25.7% over the last two years.
Final Judgment
These are just a few reasons why Philip Morris ranks highly on our list, and with its shares beating the market recently, the stock trades at 23.3× forward P/E (or $173.20 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.