Why Unilever’s Stock Keeps Falling: The Truth Behind Blue-Chip Valuations
Why Unilever’s Stock Keeps Falling: The Truth Behind Blue-Chip Valuations
If you had bought Unilever’s stock five years ago, you’d still be down around 22%. How can a world-class, blue-chip company produce losses for investors? The answer lies not in the company’s quality, but in valuation. Let’s break down why Unilever shares dropped and what investors can learn from it.
Introduction
Blue-chip stocks like Unilever are often considered safe bets. The company is profitable, has a strong global brand, and sells products almost everyone uses. Yet, even the best companies can be poor investments if bought at the wrong price. This is the core lesson behind Unilever’s price decline.
1) A Strong Company, But Overpriced
Unilever is undeniably a wonderful company. With return on equity often exceeding 100%, it generates profits far above its capital base. However, in 2017, the stock traded at valuations so high that it priced in perfection. At its peak, the Price-to-Book Value (PBV) hit 82x—far above its long-term average of 52.5x.
2) The “Warung” Analogy
Imagine a small shop (warung) worth 10 million rupiah in assets. Normally, it might be fairly priced at 10–20 million. But if someone asks for 820 million for the same shop, even if it earns 5 million a year, it would take over a century to break even. That’s essentially what happened with Unilever stock: investors were paying dozens of times above intrinsic value, betting future buyers would pay even more.
3) What PBV Tells Us
The PBV ratio compares a company’s market price to its book value. For Unilever:
- 2017 PBV: 82x (extremely expensive).
- 5-year average PBV: 61.7x.
- 11-year average PBV: 52.5x.
By 2021, the PBV dropped to 52x, meaning the stock had “returned” to its fair value range. The decline wasn’t because Unilever’s business was collapsing, but because its valuation was correcting to historical norms.
4) The Key Lesson: Price Matters
Warren Buffett famously said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Investors who bought Unilever at inflated valuations learned this the hard way. Despite Unilever’s strength, buying too high guaranteed weak returns or losses.
5) When Is It Worth Buying?
At current PBV levels around 52x—matching its 11-year average—Unilever stock can be considered fairly valued. This doesn’t make it a guaranteed winning investment, but it means buyers are paying a reasonable price for a high-quality business.
Practical Takeaways
- Always check valuation ratios like PBV and P/E before buying, even for blue-chip stocks.
- Long-term data (10+ years) gives better insight than short-term trends.
- A great company can still be a bad investment if bought at an excessive premium.
- Correction in stock prices often reflects a return to fair value, not business weakness.
Conclusion
Unilever remains a strong, profitable, and global brand—but its stock decline was driven by overvaluation, not poor performance. Investors should focus on both business quality and entry price. Buy great companies, but always at fair prices. If you want safer, long-term gains, remember: valuation discipline is just as important as picking the right company.
Label: Finance
References / Sources
- Kenapa Saham Unilever Turun Terus? (Part 1) — Channel: Saham dari Nol — Original video
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