The S&P500 index had a difficult time in 2022 owing to the global economic downturn. The S&P 500 index, a performance indicator of the 500 largest companies on the United States stock exchange, saw over a 20% downturn in the year. However, Altria, a company that produces and sells tobacco products, had a slightly better year, with its shares only losing 5% of their value.
In the long term, Altria, traded under the symbol MO, has seen an 11% increase since 2020. This increase is likely due to a few different factors. First, the company’s price-to-sales multiple has risen to 3.4 times, trailing revenues, a 16% increase.
This statement means that investors are willing to pay more for each dollar of revenue generated by Altria. Second, Altria’s revenue has also fallen by 3.5% to $25 billion over the past year, compared to $26 billion in 2020.
This decrease in revenue has partially offset the increase in the P/S ratio. Finally, the average total shares outstanding for Altria Group have gone up by 0.7% to 1.9 billion, contributing to the overall increase in the company’s stock price.
COVID-19 hit the cigarette industry like any other, with Altria seeing a decline in smokable products by almost 9% in 2022. This decline made the company sell its wine business for over $1 billion later in the year to focus on smokable and smokeless items like chewing tobacco.
However, Altria has offset some of the loss in revenue by increasing prices. As a result, Altria has expanded its operating margins (a measure of profitability) to 28% and estimates the company’s share value to be around $50 per share, which is 14% above the current market price of $45.
Moreover, this valuation is based on a price-to-earnings (P/E) multiple of 10x, which is in line with the company’s average P/E multiple over the previous three years. This statement suggests that there may be room for the company’s stock to grow.
While the stock may show signs of potential growth, it is important to consider how MO compares to other firms in the same industry. By examining metrics such as financial performance and market trends, investors can gain a more comprehensive understanding of MO’s position in the market.
In addition to analyzing MO’s peers, it is also worth noting that the recent COVID-19 crisis has caused various discrepancies in pricing across different sectors, which can create unique trading opportunities. For instance, the stock valuations of Ecolab may not align with investor expectations.
Alternatively, some investors may diversify their portfolio by including a mix of stocks, which can minimize risk and increase stability. Such portfolios, including high-quality and multi-strategy options, have shown consistent market out-performance since 2016.