Over the past six months, Altria has been a great trade, beating the S&P 500 by 16.2%. Its stock price has climbed to $67.75, representing a healthy 22.6% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is MO a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does MO Stock Spark Debate?
Best known for its Marlboro brand of cigarettes, Altria (NYSE:MO) offers tobacco and nicotine products.
Two Positive Attributes:
1. Elite Gross Margin Powers Best-In-Class Business Model
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Altria has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 70.7% gross margin over the last two years. That means for every $100 in revenue, only $29.28 went towards paying for raw materials, production of goods, transportation, and distribution. 
2. 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.
Altria 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 an eye-popping 43.3% over the last two years.
One Reason to be Careful:
Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Altria struggled to consistently increase demand as its $20.26 billion of sales for the trailing 12 months was close to its revenue three years ago. This wasn’t a great result, but there are still things to like about Altria.
Final Judgment
Altria has huge potential even though it has some open questions, and with its shares outperforming the market lately, the stock trades at 12.2× forward P/E (or $67.75 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than Altria
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