Philip Morris International Reports 50% Returns Amid Market Volatility

The S&P 500 index remains mostly flat in 2025 amid market fluctuations. In contrast, Philip Morris International (NYSE: PM) has surged, delivering a 50% total return this year, outperforming major large-cap stocks.

Strategic Shift to New Nicotine Products

Philip Morris has adeptly shifted from declining cigarette use to emerging nicotine products. Its heat-not-burn brand, Iqos, dominates with a 77% volume share in its markets, while the Zyn nicotine pouches also capture strong market presence.

Last quarter, 42% of Philip Morris’ revenue and 44% of its gross profit derived from smoke-free products, underscoring robust unit economics. Overall revenue reached $38 billion over the past 12 months, reflecting this business transformation.

Impact of Dollar Depreciation

The company benefits further from a depreciating U.S. dollar, which has fallen from around 110 to below 100. Since Philip Morris mainly operates outside the U.S., this decline enhances its revenue when converted to dollars, positively affecting its stock price.

Ongoing Relevance of Traditional Tobacco

Management’s early investment in alternative nicotine products positions the company favorably. While global cigarette use may decline by 1% in 2025 outside of China and the U.S., pricing power could still generate stable cash flow and earnings growth for decades.

Last quarter, gross profit from traditional combustibles grew 5.3% year-over-year, indicating ongoing viability in international markets where Philip Morris continues to operate.

Valuation and Future Returns

Investors may question whether Philip Morris’ recent performance can continue. The stock’s forward price-to-earnings (P/E) ratio increased to 24, up from 14 last year, and its dividend yield fell to 3% from close to 6%.

This rising valuation suggests that the recent 50% returns may not be sustainable. Nonetheless, the company’s solid dividend yield and growth potential in Iqos and Zyn indicate sustained revenue and earnings growth in the future.

Investment Considerations

Before investing $1,000 in Philip Morris International, consider that it was not included in a recent list of the top 10 recommended stocks by analysts. Some alternatives have produced significant returns historically, such as Netflix and Nvidia.

While Philip Morris may not offer the spectacular returns seen in recent months, it remains a competent investment with potential for long-term growth.

Brett Schafer has no positions in the mentioned stocks. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

The views expressed are those of the author and do not necessarily reflect Nasdaq, Inc.’s opinions.