The Unilever share price has increased 14% in 3 months. Should I buy?

Jabran Khan examines the recent rise in the Unilever share price. Is now a buying opportunity for him with this FTSE 100 consumer goods giant?

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FTSE 100 incumbent Unilever (LSE:ULVR) is one of the largest consumer goods firms in the world and the Unilever share price has increased 14% in the past three months. But why is this and should I buy the shares for my own portfolio?

Despite its rise, the share price is currently below pre-market crash levels. In February 2020, the shares were trading for 4,696p per share. As I write, they’re at 4,283p.

In February this year, the share price slumped as 2020 full-year results were announced and certain indicators disappointed the market. But since a three-year low of 3,733p per share in March, the price has risen 14% in three months.

Q1 results boost the Unilever share price

Clearly, the Unilever share price recovered primarily due to Q1 results announced at the end of May. These results showed year-on-year revenue growth of 5.7%. Higher sales volumes accounted for the majority of growth. 

Unilever’s food and refreshment segment saw sales growth of nearly 10% and management delivered an optimistic outlook. Chief executive Alan Jope said the start of the year was “good”, and projected sales growth in 2021 overall of between 3% and 5%.

Past performance is never a guarantee of future performance, of course. But it’s worth looking back sometimes to help my understanding of a particular stock, and I’ve done this with Unilever. The past four years have seen revenues of €50bn or over consistently. Net income has also not gone below €5bn in the same period. And cash flow has increased year-on-year for the past four years too.

Despite all that, the group’s mixed recent performance has clearly hindered the Unilever share price from rising higher. Yet I believe Unilever has the size, income and past record to navigate any challenges and slumps. With a global footprint and diversified products, it pumps mega-millions into research, development and marketing, and this should help future growth.

One of the best FTSE 100 shares to buy

The shares do come with risks and challenges that can affect the Unilever share price. Competition is fierce in the fast-moving consumer goods sector and always increasing. And rising costs are an issue. The price of commodities has increased and this may affect manufacturing costs. Passing price rises on to customers could hurt sales and profits.

That said, these challenges aren’t new to Unilever and while post-pandemic cost rises do worry me, many of its competitors are facing the same problems 

Despite its challenges, I do like Unilever as a FTSE 100 stock. It offers a dividend yield of 3.4% and trades at a forward price-to-earnings ratio of 20 — that’s high, but not for a stock of this quality, I feel. I believe its current price is an attractive entry point for my portfolio. Q2 and half-year results are due next month and I think the Unilever share price will increase, if the figures anything but bad. With that in mind, I would buy the shares for my portfolio today.

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.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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