Shares in Unilever (LSE: ULVR) (NYSE: UL.US) have experienced a difficult year, with the consumer-goods company posting capital losses of over 9% while the FTSE 100 is up over 2% at the time of writing. Much of this has been a result of doubts surrounding the long-term sustainability of the emerging market growth story. With the majority of Unilever’s sales coming from the developing world, it is of little surprise, therefore, that shares have underperformed.
However, Unilever is up 5% in the last month alone — does this recent strength mean that shares are now on the up? Moreover, is Unilever still a super growth stock?
Long-Term Potential
Although the sustainability of the emerging market growth story has been doubted in recent months, it still looks relatively attractive for consumer goods companies such as Unilever. So, the fact that forecasts for the current year are disappointing (earnings per share (EPS) is expected to fall by 2% this year), long-term prospects still look good. Indeed, EPS is forecast to return to growth in 2015, with the bottom line set to increase by 8% next year.
Indeed, Unilever could stand to gain in the long run from increased wealth in emerging markets. While some of Unilever’s products are consumer staples, many are discretionary items, which means that as incomes rise in the developing world, demand for such products should also increase. That’s why Unilever is investing heavily in sales agents across the developing world who are ensuring that the company’s products are widely available. This is an attempt to gain customer loyalty, with the cost of doing so likely to be offset in the future as sales for the goods increase.
Looking Ahead
Despite trading on a price to earnings (P/E) ratio of 19.3, Unilever’s quality and long-term potential mean that shares remain attractive. Certainly, EPS growth this year is disappointing, but 2015’s forecast rise of 8% is above the FTSE 100 average and shows that the company has the resilience to bounce back after a tough year.
With the potential for its products to become firm favourites in the increasingly prosperous developing world, Unilever seems to have significant long-term growth potential. As a result, it is still a super long-term growth stock.
