Stock Analysis

Is Now The Time To Put Philip Morris International (NYSE:PM) On Your Watchlist?

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NYSE:PM
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Philip Morris International (NYSE:PM). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Philip Morris International

How Fast Is Philip Morris International Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. It's no surprise, then, that I like to invest in companies with EPS growth. We can see that in the last three years Philip Morris International grew its EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Unfortunately, Philip Morris International's revenue dropped 3.6% last year, but the silver lining is that EBIT margins improved from 39% to 43%. That falls short of ideal.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:PM Earnings and Revenue History May 29th 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Philip Morris International's forecast profits?

Are Philip Morris International Insiders Aligned With All Shareholders?

Since Philip Morris International has a market capitalization of US$150b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$259m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Does Philip Morris International Deserve A Spot On Your Watchlist?

One positive for Philip Morris International is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. We should say that we've discovered 2 warning signs for Philip Morris International that you should be aware of before investing here.

Although Philip Morris International certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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What are the risks and opportunities for Philip Morris International?

Philip Morris International Inc. operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector.

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Rewards

  • Trading at 32.7% below our estimate of its fair value

  • Earnings are forecast to grow 6.59% per year

Risks

  • Has a high level of debt

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