Stock Analysis

When Should You Buy Philip Morris International Inc. (NYSE:PM)?

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NYSE:PM
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Philip Morris International Inc. (NYSE:PM) led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Philip Morris International’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Philip Morris International

What's the opportunity in Philip Morris International?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 17.7x is currently trading slightly above its industry peers’ ratio of 14.51x, which means if you buy Philip Morris International today, you’d be paying a relatively reasonable price for it. And if you believe that Philip Morris International should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Philip Morris International’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What does the future of Philip Morris International look like?

earnings-and-revenue-growth
NYSE:PM Earnings and Revenue Growth May 11th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 28% over the next couple of years, the future seems bright for Philip Morris International. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in PM’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at PM? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on PM, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PM, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Philip Morris International, and understanding them should be part of your investment process.

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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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Philip Morris International

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