3 Big Reasons to Love Philip Morris (PM)

While the S&P 500 is up 15.7% since March 2025, Philip Morris (currently trading at $164.34 per share) has lagged behind, posting a return of 6.5%. This might have investors contemplating their next move.

Taking into account the weaker price action, does PM warrant a spot on your radar, or is it better left off your list? 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. Rising Sales Volumes Show Elevated Demand

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Philip Morris’s average quarterly volume growth was a healthy 3% over the last two years. This is pleasing because it shows consumers are purchasing more of its products.

2. Elite Gross Margin Powers Best-In-Class Business Model

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

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 65.3% gross margin over the last two years. That means for every $100 in revenue, only $34.74 went towards paying for raw materials, production of goods, transportation, and distribution.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 25.3% over the last two years.

Final Judgment

These are just a few reasons why Philip Morris ranks highly on our list. With its shares trailing the market in recent months, the stock trades at 20.5× forward P/E (or $164.34 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.

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