British American Tobacco p.l.c. (NYSE:BTI) offers its cigarettes, tobacco-heating products, vapes, and nicotine pouches under brand names such as Dunhill, Newport, Vuse, and Velo. Its well-developed distribution network, pricing power, and high profit margins enable it to generate large amounts of cash. The problem, however, is keeping earnings up as cigarette consumption falls and regulations become more stringent. Despite these headwinds, the company is among the best blue-chip plays investors are interested in. Find other options here.
Revenue has been erratic. It dropped from £27.66 billion in 2022 to £27.28 billion in 2023, then to £25.87 billion in 2024 and finally to £25.61 billion in 2025. The decline in 2025 amounted to 1% according to the figures, even though revenue rose by 2.1% when measured at constant exchange rates. This point is important since fluctuations in currency rates can mask the true performance of the business, but growth at constant currency does not remove the structural pressure on volume.
The shift to smokeless products presents a possible source of growth. In the first six months of 2026, revenue rose by 1.4% to £12.24 billion, which is equivalent to 2.9% when measured at constant exchange rates, and revenue from the new category increased by 18%. However, smokeless products made up just 19.8% of the group’s revenue, so the company remains heavily reliant on traditional tobacco.
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Forward P/E: Cheap, but Not Without Risks
The forward P/E is about 10.74x as compared with a trailing P/E of 14.37x, and the forward multiple suggests an earnings yield of about 9.3%. While that yield is attractive when compared with that of many established businesses, it does not guarantee a return. Investors should distinguish between accounting earnings and the cash left after paying for capital expenditure, interest, taxes, and dividends. The fact that BAT has a large amount of debt and is vulnerable to changes in regulation means that a valuation discount is appropriate.
The fact that the forward P/E is higher than the trailing P/E indicates that analysts expect earnings to grow. It is also possible, however, that the difference is due to the effect of unusual items from the previous year on the reported earnings. In 2025, reported diluted EPS increased by 157% to 349.1 pence, mainly as a result of changes in the Canadian settlement provision, whereas adjusted diluted EPS rose by only 3.4%. Investors should therefore look at normalized earnings rather than take the lower forward multiple as evidence that the share price is too low. One should also exercise caution when drawing historical comparisons. Read more about BTI in our tobacco and cigarettes stocks list.
During part of the period 2020 to 2024, BAT’s forward P/E was about 6x to 8x before increasing to approximately 11.9x by the end of 2025. Although its present multiple of 10.74x is below the level it reached at the end of 2025, it is still higher than a number of earlier figures. This indicates a certain recovery in investor confidence rather than proving that the valuation is unequivocally at a bargain-basement level.
BTI offers an annual dividend of $3.32 per share, which gives it a yield of about 6.0%. The income considerably improves the case for investment, particularly where earnings growth is expected to be moderate. BAT has increased its 2025 dividend by 2% to 245.04 pence per share and intends to achieve further dividend growth in sterling terms. Yet a high yield may indicate that the market has concerns regarding future cash flows since debt reduction, regulatory costs, and investment in new products all compete with dividends for capital. BTI’s yield places it on our high-yield stocks list. However, the #1 stock on our list has a yield over 6% and trades at an even lower forward multiple of 9.6. Check here.
Conclusion
The forward P/E ratio of BAT is about 10.7x, with an earnings yield of 9.3% and a dividend yield of 6%, which means the shares are worth looking at for investors who are interested in income. However, the historical trends show a decline in revenue and debt, together with the uncertain economic outlook of its shift to smokeless products, which means that the low price-to-earnings ratio does not automatically indicate a good buy. The investment case will finally come down to whether growth in the new category can keep earnings and dividends going as sales of traditional tobacco fall.
While we acknowledge the risk and potential of BTI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BTI and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
