Is the gap in Vector's valuation justified?

We don't think the gap in valuation makes sense, given Vector's stronger revenue growth and profitability (as discussed below).

BRAZIL - 2021/02/12: In this photo illustration the Altria logo seen displayed on a smartphone ... [+] screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)SOPA Images/LightRocket via Getty Images
It's no secret that Big Tobacco has been struggling in recent years. Altria, one of the world's largest tobacco companies, is no exception. The company's stock has been in decline for some time, and it faces increasing pressure from regulators and health advocates. But there are signs that Altria is starting to turn things around. The company has made a number of smart moves in recent months, including investing in vaping and cannabis companies. And its stock has begun to rebound.

We believe that Vector Group stock (NYSE: VGR), a relatively small tobacco company, currently is a better pick compared to the tobacco giant Altria stock (NYSE: MO), given Vector’s comparatively lower valuation of 1.1x trailing revenues vs. 2.9x for Altria. This gap in the valuation doesn’t make sense in our view, given Vector’s superior revenue growth, and profitability, as discussed below.

There is more to the comparison between Altria and Vector Group than just stock performance, and we believe that Vector Group offers a better investment opportunity than Altria Group. We compare a number of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of the two companies. Vector Group has outperformed Altria in terms of revenue growth, return on investment, and valuation multiple. We believe that Vector Group will continue to outperform Altria in the next three years, and offer a better return on investment.

As Vector continues to grow its revenue, it is becoming increasingly clear that the company is one of the most promising startups in the tech industry.

  • Vector's strong sales growth over the last twelve months is a positive sign for the company's future prospects. Altria's negative sales growth over the same period is a cause for concern, and the company will need to work hard to turn things around.
  • Looking at the longer-term picture, Vector has outperformed its competitor, with sales rising at an average annual growth rate of 2.7% to $1.2 billion in 2021. This compares favorably to Altria's sales growth of 0.9% to $26.0 billion over the same time period. Vector's strong performance is a result of the company's focus on innovation and customer satisfaction.
  • It is clear that the pandemic has had an impact on Altria's revenue growth, as the company sells its tobacco products in the U.S. markets. However, despite supply disruptions, Altria is still generating revenue from the sale of smokable and smokeless products. It is clear that the company is committed to its products and its customers, and it is likely that Altria will continue to be a major player in the tobacco industry for years to come.
  • With Altria selling its wine business for $1.2 billion last year, the company has shifted its focus to smoking and smokeless products. This move has allowed Altria to better compete in the tobacco market and maintain its position as one of the leading tobacco companies in the world.
  • Vector's focus on the discount market has paid off, with the company seeing its revenue rise thanks to pricing actions. The company's brands such as Grand Prix, Liggett Select, and Pyramid are well-known in the discount market, and Vector is poised to continue its success in this space.
  • As a news article, I see the Vector-Douglas Elliman Realty spinoff as a positive move that will allow both companies to focus on their core businesses. I believe this will be a win-win for both companies and their shareholders.
  • The Altria Revenue and Vector Group Revenue dashboards offer a more in-depth look at the companies' sales numbers. This allows investors and analysts to better understand the financial performance of these companies.
  • It is expected that both the volume and revenue for both companies will decline in the long run. This is due to health concerns and government restrictions. However, pricing growth is expected to trend higher, which will offset some of the decline.
  • If the U.S. economy were to face a recession and cut in consumer spending, it is likely that Vector would fare better over its peers, given its focus on the lower-end discount cigarette market. While other tobacco companies may suffer from a recession, Vector's focus on the lower-end of the market means that it is more likely to weather the storm.
  • Looking ahead, we expect Vector's revenue to grow faster than Altria's over the next three years. According to our Trefis Machine Learning analysis, Vector's revenue is expected to grow at a compound annual growth rate (CAGR) of 3.2% over the next three years, compared to a CAGR of 1.6% for Altria. This means that Vector is well-positioned to take advantage of the growing e-cigarette market and continue to grow its market share.
  • Looking ahead, we have different methodologies for forecasting future revenues for companies that have been negatively impacted by Covid-19, versus those that have not been impacted or have actually been positively impacted by the pandemic. For companies in the former category, we take into account the quarterly revenue recovery trajectory in order to forecast a return to the pre-Covid revenue run rate. Once the recovery point has been reached, we then apply the average annual growth rate seen in the three years prior to Covid-19 in order to simulate a return to normal conditions. For companies that registered positive revenue growth during the Covid-19 pandemic, we consider the yearly average growth rate seen before Covid-19, with a certain weight given to growth during the pandemic and in the last twelve months. This allows us to more accurately forecast future revenue growth for these companies.
Annual Growth Forecast - MO vs. VGRTrefis
It's been a tough year for many industries, but annual growth forecast numbers from MO and VGRTrefis show that things may be starting to look up.

As the world increasingly moves online, businesses must adapt to survive. Vector is a perfect example of a company that has done just that.

  • It is clear that Vector Group Ltd. (NYSE: VGR) is the superior tobacco company when comparing operating margins.
  • The data shows that the pandemic has had a significant impact on employment and wages in the United States. The unemployment rate has more than doubled, while the average hourly wage has decreased by almost 4%.
  • It's clear that Vector lags behind Altria in terms of free cash flow margin. Vector's 19.0% free cash flow margin is significantly lower than Altria's 32.5%.
  • As a news article, I would like to provide more details about the Altria Operating Income and Vector Group Operating Income dashboards. I feel that these dashboards are important tools for investors and analysts to use when considering investments in tobacco companies.
  • Looking at financial risk, Altria appears to be in a better position than Vector, with a lower debt-to-equity ratio and a higher cash-to-assets ratio. This implies that Altria has less debt and more cash on hand than Vector, making it a less risky investment.

The internet has become an integral part of our lives, and it's hard to imagine living without it.

  • Looking at the numbers, it's clear that Vector is the better pick here. They've got stronger revenue growth, higher profitability, and more cash on hand. Additionally, their valuation is relatively lower. Altria does have a better debt position, but Vector has outperformed them historically.
  • We still believe Vector is the better choice of the two, even though there have been high fluctuations in P/E and P/EBIT. P/S is a more stable metric, and Vector looks good on that basis.
  • We expect Vector Group to outperform Altria over the next three years, with an expected return of 14% compared to 5% for Altria stock. This is based on our Trefis Machine Learning analysis, which provides more details on our methodology.

While VGR stock may outperform MO, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you'll be surprised how counter-intuitive the stock valuation is for Philip Morris vs. Coca-Cola.

If you're looking for a more balanced portfolio, our high-quality portfolio and multi-strategy portfolio have both outperformed the market since 2016. With returns of 175% and 262%, respectively, vs. just 50% for the S&P 500, these portfolios offer a great way to diversify your investments and improve your chances of achieving market-beating returns.

MO & VGR Returns Compared With Trefis Multi-Strategy Portfolio  Trefis
The Trefis Multi-Strategy Portfolio outperformed both the MO and VGR returns by a significant margin.

Looking at the Trefis price estimates, it's clear that the company is doing well and is on track to continue growing. The estimates show that the company is worth more than its current stock price, and that there is room for growth. This is good news for investors, and for the company itself.