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Why is the British American Tobacco share price down this week?

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British American Tobacco (LSE:BATS) describes itself as the world’s most international tobacco group, operating in more countries than any other firm. This week has seen the British American Tobacco share price dip over 6% since trading opened on Monday morning. I would argue the FTSE 100 incumbent is a profit-generating, juicy dividend yielding stock. So why has its share price dipped? And with this dip, do I see it as an opportunity at a more attractive price point?

British American Tobacco share price slumps

When the markets opened on Monday morning I could buy shares in British American Tobacco for close to 2,900p per share. As I write this on a Friday afternoon, shares are trading for 2,705p per share. That’s a 6% drop in the week. In my opinion that is a sizeable change for an established FTSE 100 firm such as BATS.

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Looking back further, approximately four years ago, the British American Tobacco share price was nearly 50% higher than current levels. So it is fair to say the price has been declining for some time.

Potential risks affect share price

The recent dip in the British American Tobacco price has been caused by reports emerging from the US about possible new restrictions on nicotine levels in cigarettes. The US market is one of BATS’ most profitable markets.

Neither the US government nor the US Food and Drug Administration (FDA) have commented on the report. Nor is there a guarantee this restriction will come into effect. Despite this, an over 6% slump in share price is definitely newsworthy in my opinion. It has also made me pay attention to see if I could benefit from this lower price point.

Regulation and restrictions are a constant threat to tobacco companies. When they rear their head, share prices can tumble. Nicotine is an addictive substance that creates more demand for a smoking product. If any restrictions came into place, profits would surely be affected. It is worth noting that British American Tobacco’s FTSE 100 peer, Imperial Brands, has also suffered a dip in price this week too.

Something similar occurred in 2017 when the FDA attempted to introduce restrictions then too. There have been other challenges in the past and although the British American Tobacco share price may react negatively, as a company, it continues to generate healthy profits.

FTSE 100 opportunity?

Overall, I believe the British American Tobacco share price is a potential FTSE 100 opportunity albeit with some risks. Profits at BATS have increased nearly 50% between 2015 and 2020 from £4.3bn to £6.4bn. It has a juicy dividend yield of just under 8% too. Granted, this is not guaranteed and could change if profits are affected.

I do believe the tobacco industry is always at risk of changes in regulation and new restrictions. It is also a known fact that the number of smokers across the world is declining therefore the number of cigarettes is also in decline. These are things I must consider. Away from the FTSE 100, this tech stock has had a rollercoaster few months since its IPO but is it an opportunity to get in at a cheap price just now?

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Jabran Khan has no position in any of the shares mentioned. 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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