Philip Morris International Inc. (PM) Is Going Nowhere. Here’s Why.

The commonly accepted wisdom in the cigarette industry goes something like this: Smoking is in decline in the United States. Therefore, if you want to make money on tobacco, you must look abroad. You must buy Philip Morris International Inc. (NYSE:PM) stock.

The problem, though, is that this commonly accepted wisdom is dead wrong. Tobacco investors can do quite well by buying a domestic cigarette business. In contrast, Philip Morris International Inc. (NYSE:PM) stock is looking overpriced today, and unlikely to outperform going forward. Why?

Three reasons.

Philip Morris stock is at the bottom of the pack
When you stack up Philip Morris International Inc. (NYSE:PM) stock against its rivals, it quickly becomes apparent that investors have been overpaying for an inferior company. Valued on its earnings, a share of Philip Morris stock will cost you 18.1 times earnings today, while a share of former parent Altria Group, Inc. (NYSE:MO) costs only 17.2 times earnings, and a pack of Lorillard Inc. (NYSE:LO) shares sells for a P/E of just 14.1 — 22% cheaper than Philip Morris International Inc. (NYSE:PM).

Worse, when you lay the three companies side by side, you can plainly see that Philip Morris generates far less real cash profit than does the less popular Lorillard. As a matter of fact, its free cash flow yield is even a skosh smaller than that of Altria Group, Inc. (NYSE:MO) itself!

PM free cash flow yield data by YCharts

Philip Morris isn’t growing as fast as you’ve heard
Focused on the international market, Philip Morris International Inc. (NYSE:PM) stock is currently expected to grow faster than most of its peers. To this extent, what you’ve heard about the stock is probably true. What’s interesting, though, is that Philip Morris isn’t growing all that much faster than its rivals — not enough to justify its costing 28% more than Lorillard Inc. (NYSE:LO), at least: