Here are two numbers that I think help make the case.
Of course the key takeaway from last months interims was the continued deterioration in Unilevers critical emerging markets, regions that account for around 57% of total revenues. The business saw underlying sales tick 6.2% higher during January-September, it noted, marking a vast slowdown from growth of 8.8% during the same nine months in 2013.
And worryingly sales continue to slow sharply in these developing markets indeed, sales rose just 5.6% during the past quarter, a rapid drop from 6.6% during the first half and representing a huge departure from growth of 10.3% in January-June last year.
And Unilever cautioned that we expect markets to remain tough for at least the remainder of the year, the company having experienced market-wide weakness as well as significant de-stocking in China. On top of this the business is also having to bat away the effect of adverse currency movements through prices rises, although this is of course doing nothing to soothe the problem of insipid consumer demand.
I believe that Unilever remains a solid long-term stock selection owing to its extensive exposure to these growth markets, where rising population levels and increasing affluence levels should boost demand for consumer goods. But with signs of any turnaround remaining elusive to say the least, Unilever could be poised to endure pressure on the bottom line for some time yet.
Shares in Unilever have experienced extreme choppiness during the past 18 months, of course prompted by the apparent slowdown in developing market demand and shares have conceded 6% during the past two months alone. Still, the household goods giant remains in positive territory for 2014 up 3.5% in the year to date while the rest of the FTSE 100 trades firmly in the red.
This has led to many speculating that Unilever remains overpriced given the worsening conditions in its key markets and subsequent earnings downgrades.
This point is underlined by the business dealing on a P/E multiple of 19.9 times predicted earnings for this year, ahead of a corresponding readout of 17.2 for the rest of Britains 100 largest listed companies, and soaring above the benchmark of 15 or below which represents decent value.
And Unilever remains an expensive selection for 2015, boasting an earnings multiple of 18.4. Given the heavy lifting the business still has to do to get its ailing sales performance in both emerging and traditional markets back on track, I believe that the current share price does not fairly reflect the risk of protracted earnings weakness.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.