Philip Morris currently trades at $190.49 per share and has shown little upside over the past six months, posting a middling return of 3.7%. The stock also fell short of the S&P 500’s 13.9% gain during that period.
Is now the time to buy PM? Find out in our full research report, it’s free.
Why Is Philip Morris a Good Business?
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. 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 67% gross margin over the last two years. That means for every $100 in revenue, only $32.98 went towards paying for raw materials, production of goods, transportation, and distribution.
2. Operating Margin Reveals a Well-Run Organization
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Philip Morris has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 37%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
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 26.6% over the last two years.
Final Judgment
These are just a few reasons why we think Philip Morris is a great business. With its shares trailing the market in recent months, the stock trades at 21.7× forward P/E (or $190.49 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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