The Unilever (LSE: ULVR) share price has underperformed the market over the past 12 months. Including dividends, the stock has returned just 8%, compared to 22% for the broader index.
The stock has printed this lacklustre performance even though growth has exceeded expectations. In the first quarter, the company reported year-on-year organic revenue growth of 5.7%.
Most impressive of all, higher sales volumes accounted for the bulk of this growth, implying the company isn’t just relying on price hikes to boost revenues. In its most important division — food and refreshment — sales grew 9.8% overall, 7.3% of which was volume growth.
I think the divergence between the company’s underlying fundamentals and the Unilever share price presents an opportunity.
Growth and income
Unilever isn’t the market’s most exciting company but, in my opinion, it’s one of the FTSE 100‘s most tried-and-tested businesses.
Over the past decade, it’s achieved consistent growth year after year through a combination of organic growth, acquisitions and price hikes. This has been a winning formula in the past, and while past performance should never be used as a guide to future potential, I think it could continue to work.
Unilever has two critical advantages over other, smaller businesses in the consumer goods sector. First of all, its size gives the company a considerable amount of weight with buyers. So, for example, if Tesco has to choose between stocking Unilever’s products and those of a smaller peer on its valuable shelf space, it will usually go with Unilever.
Second, the organisation spends billions of euros every year on marketing. This consistent spending year after year gives the company access to the best marketing channels and resources. Therefore, the enterprise may get more advertising bang for each euro spent.
Unilever share price risks
The company faces several challenges as well. Unfortunately, I think the market has been spending too much time focusing on these negatives recently. Competition in the consumer goods sector is fierce, and it is only growing. It’s never been easier to start a consumer goods brand and get the word out to customers. This is putting pressure on Unilever.
The company is also facing increased pressure from rising costs. Commodity prices have been growing over the past 12 months. This could increase manufacturing costs for the group, which it may struggle to pass on to customers. Rising costs may impact profit margins and growth.
In my opinion, the market has been spending too much time concentrating on these negatives. Yes, Unilever is facing some headwinds, but it has had to deal with similar challenges in the past. The company’s size and diversification suggest it’s exceptionally well-positioned to navigate anything the economy throws at it.
As such, I think the Unilever share price currently presents an attractive opportunity. That’s why I’ve been buying shares in the consumer goods giant for my portfolio to take advantage of the disconnect between the company’s fundamentals and stock price performance.
We think that when a company’s CEO owns 12.1% of its stock, that’s usually a very good sign.
But with this opportunity it could get even better.
Still only 55 years old, he sees the chance for a new “Uber-style” technology.
And this is not a tiny tech startup full of empty promises.
This extraordinary company is already one of the largest in its industry.
Last year, revenues hit a whopping £1.132 billion.
The board recently announced a 10% dividend hike.
And it has been a superb Motley Fool income pick for 9 years running!
But even so, we believe there could still be huge upside ahead.
Clearly, this company’s founder and CEO agrees.
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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended Tesco and 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.