Why isn’t the Unilever share price rising faster?

The Unilever share price has only moved 2% compared to a year ago. Christopher Ruane looks at why and explains what he’ll do next.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman sneaker shoe and Arrow on street with copy space background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

christopherruane owns shares of S4 Capital plc and 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »