Is Now The Right Time To Buy Unilever plc?

Unilever plc (LON:ULVR) is a great long-term stock, but buyers could profit from being patient.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

unilever2Unilever (LSE: ULVR) (NYSE: UL.US) shares have risen by 142% over the last 10 years, but the consumer goods firm’s share price performance has cooled recently, and Unilever’s share price is down by 13% from the all-time high of 2,862p we saw in May 2013.

Does this decline make Unilever a buy, or are the firm’s shares likely to fall further before recovering?

I’ve taken a closer look to find out more.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Pricey P/E

Let’s start with the basics: how is Unilever valued against its past earnings, and the market’s expectations of future earnings?

P/E ratio

Current value

P/E using 5-year average adjusted earnings per share

21.4

2-year average forecast P/E

18.2

Source: Company reports, consensus forecasts

Unilever shares haven’t been cheap for a long time, and they still aren’t.

The firm’s underlying growth and free cash flow compensates to this for some extent: Unilever’s dividend has been consistently covered by free cash flow in recent years (unlike most UK supermarkets, for example) and the firm’s 3.6% prospective yield in line with the FTSE 100 average.

However, Unilever’s sales fell last year, and profits are expected to fall this year. Is the Anglo-Dutch firm’s premium price tag still justified?

A closer look

Unilever’s first-half results were encouraging, with emerging market sales up 6.6% and the firm’s core operation margin stable at a very healthy 14%, despite turnover falling by 5.5% due to currency effects.

However, a year is a short time for a large firm like Unilever, and in my view it’s more important to look at the medium-term trends before deciding whether to buy or sell.

I’ve taken a look at some of the firm’s key fundamentals over the last five years:

Metric

5-year compound average growth rate

Sales

+4.6%

Adjusted earnings per  share

+2.6%

Dividend

+6.1%

Book value

+3.3%

Net debt

-2.8%

Source: Company reports

It’s a pretty well-rounded picture, in my view: shareholders have been well rewarded by a rising dividend, while the firm’s net debt has actually fallen by an average of 2.8% per year.

I don’t see anything to be concerned about here. Looking ahead, City analysts expect more of the same: current forecasts suggest both earnings per share and the dividend will rise by around 6% in 2014 and 2015.

Is Unilever a buy?

As a long-term Unilever shareholder, I’d be happy to top up my holding at today’s prices, but I do think that the company’s shares are a little expensive, even given their above-average growth prospects.

Unilever’s share price has fallen by 5% over the last three months — it’s possible that this fall might continue, providing an attractive buying opportunity later this year or early next year. 

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares in Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: May’s lower-risk, higher-yield Share Advisor recommendation [PREMIUM PICKS]

Ice ideas will usually offer a steadier flow of income and is likely to be a slower-moving but more stable…

Read more »

Blue NIO sports car in Oslo showroom
US Stock

Is NIO stock an unmissable bargain below $4?

Jon Smith addresses some of the recent chatter about NIO stock and explains why he's not convinced now's the best…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

£10,000 invested in Greggs shares today could deliver £363 in dividends in 2027

Greggs shares have dipped significantly over the past 12 months, but this has pushed the dividend yield way up, creating…

Read more »

Tesla car at super charger station
Investing Articles

More bad news! Is it now game over for Tesla stock?

Tesla stock is still trading at a mighty premium, despite more recent negative developments. Yet there are some bright spots…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Down 29% in a year, meet the S&P 500 stock I’m considering buying June

UK investors might not be familiar with Danaher. But the S&P 500 stock is top of Stephen Wright’s buying list…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

Up 45% with a P/E just over 12 – this FTSE 250 stock is on fire!

Harvey Jones is kicking himself for failing to buy this FTSE 250 stock last October. It’s been the perfect way…

Read more »

Group of friends meet up in a pub
Investing Articles

Down 50%, are Diageo shares a bargain in plain sight?

With the shares trading at multi-year lows, this writer examines the latest trading update from Diageo, together with its long-term…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

3 reasons to consider HSBC shares for passive income

Aiming to generate extra passive income? This writer thinks HSBC shares from the FTSE 100 index are worth a look…

Read more »