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The Unilever share price slumps, but I’m still buying the stock

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Since the beginning of 2021, the Unilever (LSE: ULVR) share price has plunged in value. It’s fallen just under 11% since the beginning of the year. That compares to a positive return of 3% for the FTSE 100 over the same timeframe. Based on these figures, the stock has underperformed the broader market by 14%, excluding dividends, in 2021.

Unfortunately, the company’s performance over the past 12 months looks even less impressive. The stock has returned just 7%, excluding dividends, compared to 32% for the FTSE 100.

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However, despite this poor performance, I believe the Unilever share price looks cheap. As such, I’ve been buying more of the stock for my portfolio over the past 12 months.

Unilever share price challenges

Whenever I consider buying a stock that’s recently underperformed the market, the first thing I do is try and understand why. In the case of Unilever, I think there are several reasons.

First, even though the company reported sales growth last year, it’s lagged its international peers. This has hurt investor sentiment towards the business.

Second, the company’s more established brands seem to be losing market share to supermarket own-brands and new upstarts. This is one reason why the firm’s growth hasn’t been as strong as some investors might have liked over the past few years.

Third, Unilever is trying to correct the above issues, but to do so, it will have to spend more on research and development. It seems the market is concerned this extra spending will hit investor returns. 

These are just some of the risks and challenges the company faces, but I believe they’re the most important ones. The question is, can management overcome these headwinds and improve investor sentiment towards the Unilever share price? 

Searching for growth

There’s no clear answer to that question. Nevertheless, I think it’s incredibly positive the group is planning to spend more developing its brand and new products.

Granted, this additional investment will hit shareholder returns in the near term, but I’m willing to look past these short-term headwinds as a long-term investor. Management is targeting sales growth of 3-5% in the long term

The market’s best-performing growth companies spend vast amounts on research and development every year. In most cases, this spending pays off in the longer stretch, and sacrificing long-term potential for short-term returns is, in my opinion, incredibly short-sighted. 

That’s why I think the recent performance of the Unilever share price is a great opportunity. I’ve been buying the stock as it’s been falling, in order to capitalise on the market’s short-term mentality. 

But while the stock has dipped, its dividend yield has increased. At the time of writing, the Unilever share price supports a dividend yield of just under 4%. This yield is by no means guaranteed in the long term, but it’s yet another reason why I’d buy the stock today.

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Rupert Hargreaves owns shares in Unilever. 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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