Philip Morris has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 11.7% to $178.45 per share while the index has gained 9%.

Is now the time to buy PM? 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. 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 66.5% gross margin over the last two years. That means for every $100 in revenue, only $33.47 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 profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Philip Morris’s operating margin has generally stayed the same over the last 12 months, averaging 36.5% over the last two years. This profitability was elite for a consumer staples business thanks to its efficient cost structure and economies of scale. 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 26.1% over the last two years.

Final Judgment

These are just a few reasons Philip Morris is a rock-solid business worth owning, but at $178.45 per share (or 20.8× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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