Isaac Toussie Explains the Barriers to Entry in the Tobacco Industry

    NEW YORK, NY, June 03, 2022 /24-7PressRelease/ -- When making the decision to invest in any company, investors generally look to the industry in which the company is situated to ascertain crucial facts about the company's trajectory. The tobacco industry generally is one that is extremely conducive to growth, especially among stocks with high growth opportunities. Despite common opinion, tobacco companies themselves continue to be some of the largest and most successful companies in the world. One reason for that is that the tobacco industry is one that has high entry barriers for new companies.

To say that an industry has high entry barriers indicates that it is difficult for new companies to enter into the industry; there are multiple hurdles for new companies that most cannot overcome. Isaac Toussie, a known consultant and business advisor in the field, stated that in the tobacco industry many hurdles exist for companies that are looking to enter the space. Firstly, the tobacco industry hinges on brand recognition. The large cigarette companies, like Altria and British American Tobacco, have been promoting their brands for decades until recent legislation. However, new companies that want to enter the market now will be subject to current legislation that bans cigarette advertising in nearly all forms. The lack of ability of potential competitors to promote their brands would hinder new competitors from growing or even entering the tobacco industry in the first place.

When making the decision to invest in any company, investors generally look to the industry in which the company is situated to ascertain crucial facts about the company's trajectory. The tobacco industry generally is one that is extremely conducive to growth, especially among stocks with high growth opportunities. Despite common opinion, tobacco companies themselves continue to be some of the largest and most successful companies in the world. One reason for that is that the tobacco industry is one that has high entry barriers for new companies.

To say that an industry has high entry barriers indicates that it is difficult for new companies to enter into the industry; there are multiple hurdles for new companies that most cannot overcome. Isaac Toussie, a known consultant and business advisor in the field, stated that in the tobacco industry many hurdles exist for companies that are looking to enter the space. Firstly, the tobacco industry hinges on brand recognition. The large cigarette companies, like Altria and British American Tobacco, have been promoting their brands for decades until recent legislation. However, new companies that want to enter the market now will be subject to current legislation that bans cigarette advertising in nearly all forms. The lack of ability of potential competitors to promote their brands would hinder new competitors from growing or even entering the tobacco industry in the first place.

Another barrier to entry stopping new companies from entering the tobacco industry is the fact that there are high startup costs associated with manufacturing cigarettes. Quotas set on farmers growing tobacco coupled with high scaling costs of marketing cigarettes nationwide both limit the number of companies that can afford to make it into the market. Packaging and branding costs are also high for cigarette companies operating on a small scale. These high costs make it harder for small companies to grow to a size that can compete with larger tobacco companies like British American Tobacco.

The high barriers to entry make the larger, more established companies all the more attractable as investments. It ensures that they will remain profitable and maintain their share of the industry. Furthermore, they have a constant client base due to the nature of their product. The fact that cigarettes are addictive means that clients will continue purchasing them. Toussie stated that this is also a great hedge against inflation and rising costs do not harm the industry as badly as others. A consistent customer base along with high entry barriers are both strong reasons to consider an investment in established tobacco companies.

Moreover, Isaac Toussie points out several of the tobacco companies have low Schiller PE ratios, low price to free cashflow ratios, high interest coverage ratios, low debt to equity ratios and low price to book value ratios. This combined with their less hazardous next generations products creates a clear pathway for sustained growth for some of these companies. Toussie stated that both Imperial Brands British American Tobacco and Japan Tobacco are good companies to consider.

This article is presented for informational purposes only and should not be relied upon as financial or other advice.

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