Over the past year, many companies have seen their share prices soar. But Unilever (LSE: ULVR) has barely shifted overall. It has moved up and down, but the Unilever share price today is just 2% higher than it was a year ago.
Here I consider why the Unilever share price has not been rising faster – and what might come next.
Growth versus value
Sometimes the stock market seems to favour ‘growth’ stocks that have a strong story about increasing revenue, such as digital marketing agency S4 Capital. At other times, many investors hunt for ‘value’ stocks — shares in companies that trade relatively cheaply considering their profits.
Growth stocks have been popular lately. That has meant less investor capital chasing UK value shares. Unilever’s competitor Reckitt, for example, is down 11% over the past year even though it owns brands that experienced a pandemic sales surge, such as Dettol.
I see some signs that value shares are coming back into vogue. If that happens, the Unilever share price might move up. But a risk is that value shares in general remain out of favour with many investors. That could dampen upward share price movement for Unilever too.
Revenue and the Unilever share price
As a global business, Unilever is exposed to currency exchange rate fluctuations. That can work to its disadvantage.
Consider its first quarter, for example. The underlying sales growth was 5.7%, which is pretty solid in my view. So why did turnover actually contract 0.9%? In short, while sales grew, the money generated when converted into euros shrunk. That is typically because of a less favourable exchange rate.
Shrinking revenues help to explain a lacklustre Unilever share price performance. With its global footprint, there is a clear risk negative exchange rate impacts could hit the company again in the future. Sometimes, though, the opposite can happen: a positive shift in exchange rates can boost revenue in excess of actual sales growth.
Lockdown impact
Unilever doesn’t just sell to consumers. It also markets food brands like Magnum and Hellmann’s to commercial foodservice customers such as restaurants.
As lockdowns in various markets continue to hamper demand, the company has suffered a sales impact. Low single-digit growth in the first quarter in the company’s food solutions business masked mixed performance. The Chinese market grew, but some countries where lockdown restrictions remained in place reported sales falls.
This sales impact continues to be a risk for the Unilever share price, in my view. Closures in foodservice channels could continue to reduce revenues. At some point, I expect end markets to open up again fully – but it could take a while.
My next move on the Unilever share price
As a Unilever investor, one way for me to see its recent share price performance is as a disappointment. I would have hoped the company’s share price would move up and boost the value of my holding.
But an alternative analytical lens is to see it as a continued buying opportunity. I can buy the company at roughly the price I could a year ago. But I think the future demand picture now is much clearer than it was then, which I see as a positive development.
That’s why I continue to see the company as attractive and would consider buying more Unilever shares now.
