Tobacco giant Altria Group doesn’t rapidly grow its revenues. Still, its gross margins are consistently above 60%, meaning that Altria has made money regardless of what’s going on in the world around it. The company has paid a juicy dividend to investors and outperformed the S&P 500 for more than 50 years.
Pricing pressure from competitorsThe company’s revenue depends on commodity prices that fluctuateThe business doesn’t do well during recessions There are many reasons why a company’s gross margins can be affected, including:
These factors can cause a business to struggle to make money, so finding companies with very high and consistent gross margins is advantageous for investors. After revenue growth, gross margin is high on the list of what drives stock returns. Many businesses grow, but if a company can’t make money, it will eventually come back to haunt investors.
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