The rapid growth in the vape market is being weighed down by a cloud of scrutiny. Despite the hostile environment, though, the market will grow to $59 billion by 2027. Additionally, the established players in the industry have welcomed the scrutiny in hopes of limiting competition. Therefore, the best vaping stocks are those with an established foothold in the industry.
Reports suggest that the sector’s expansion is due to a growing distribution network, increased promotional efforts and improved perceptions. Additionally, the major vape markets, including the U.S., China, Germany and others, will post double-digit gains by 2027.
Moreover, the greater regulations in the sector are likely to benefit the major players in the sector. The greater scrutiny is likely to have a greater impact on small and medium-sized vape businesses.
With that being said, let look at three vaping stocks still worth a look:
- Turning Point Brands (NYSE:TPB)
- British American Tobacco (NYSEMKT:BTI)
- Imperial Brands PLC (OTCMKTS:IMBBY)
Vaping Stocks to Buy: Turning Point Brand (TPB)
Turning Point Brand is amongst the top companies specializing in non-cigarette tobacco products. It has recently ventured into the CBD and vaping devices market under its NewGen segment. With the coronavirus-related marketplace disruptions, TPB stock is down 6% this year.
The company had a strong showing in the second quarter with a 12.5% increase in revenues to $105 million. Specifically, its NewGen segment witnessed an 11.8% growth in revenues on the back of consolidation gains in its vape distribution business.
However, net income tanked by $4 million to $9.2 million, due to regulatory expenses concerning the recent Premarket Tobacco Product Applications (PMTA) law. Despite the challenges though, it expects third-quarter revenues to be in the $90 to $95 million range. Additionally, the company also announced a quarterly dividend of 5 cents per share, which marks two years of dividend growth.
British American Tobacco (BTI)
British American Tobacco is one of the established players in the combustible cigarette market. Similar to other giants in the industry, it has diversified its product portfolio to include next-generation products.
These next-generation products predominantly include products in the vaping and heat-not-burn market. Despite the crippling effects of the pandemic, BTI stock shed 15% of its value.
Despite the challenges presented by the coronavirus, results for its first quarter were pretty decent. Operating profit was up 3.3% year-over-year 5.37 billion British pounds, and revenues also rose by 1.1%. The management stated that its volumes declined 6.3% due to the Covid-19 related travel restrictions. For the full year, it forecasts a 1% to 3% growth in revenues.
Its “new categories” business was the star of the show with a 14.7% jump in revenues year-over-year. Moreover, it’s the heat-not-burn portfolio, which includes its Glo product, has performed exceedingly well this quarter. It is directly competing with the IQOS, which is Phillip Morris’ (NYSE:PM) primary heat-not-burn product.
The company’s dividend is secure as well, with a 12-year free cash flow yield of roughly 13.8%. The dividend yield is at a healthy 7.7%, with an impressive payout ratio of 65.4%.
Imperial Brands PLC (IMBBY)
Imperial Brands PLC is a tobacco company that manufactures a variety of fine cut, cigars, papers, and other products. Additionally, it also produces non-tobacco and next-generation products. IMB stock has taken a hammering this year but is up 10.2% this month.
Second-quarter earnings were expectedly weak, with revenues 2% lower than the prior-year period. Additionally, EPS was at 55 pence, which was lower than the 71 pence it made in the same period last year.
Though its tobacco business remained solid, its next-generation products took a significant hit. Restrictions on certain vaping flavors and a generally volatile legal environment resulted in weakened demand.
However, despite its recent challenges, its dividend is well-covered by underlying earnings and free cash flows. It currently has a healthy 10.6% dividend yield and has enough room to grow its dividend for the foreseeable future. If the regulatory environment becomes less hostile towards its next-generation products, expect a major pullback in revenues.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
