Altria has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9.5%. The stock now trades at $59.65, marking a 14.5% gain. This performance may have investors wondering how to approach the situation.

Is it too late to buy MO? 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 Things to Like:

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 70.2% gross margin over the last two years. That means for every $100 in revenue, only $29.78 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 42.9% over the last two years.

One Reason to be Careful:

Revenue Spiraling Downwards

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Altria’s demand was weak and its revenue declined by 1.3% per year. This wasn’t a great result, but there are still things to like about Altria.

Final Judgment

Altria’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 11.2× forward P/E (or $59.65 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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