British American Tobacco (LSE: BATS) has experienced a 9% dip in its share price over the last two weeks, leading to an 18% drop in share price since the beginning of the year. Despite this, some analysts believe it presents a rare buying opportunity.

Firstly, recent sales figures have been encouraging for the company. With total revenue surpassing £27bn in 2022, BAT is now the world's largest cigarette seller based on sales volume. Revenue has also been steadily increasing in recent years, driven by rising wealth in middle-income countries.

Furthermore, the company has consistently maintained excellent margins of over 20%, resulting in over £6bn net income and £9bn free cash flow year after year. Debt is also well covered by earnings and cash flows.

BAT's Dividend yield is also attractive, currently standing at 8.5%, which is in the top 25% of dividend payers in the market. The forward dividend is even higher at 8.24%. The company spends around 75% of its income on dividends, resulting in a dividend cover of 1.3, which looks sustainable for the future. Dividends have been in the 5%-10% range since 2018, with the actual payout slowly increasing over the years.

Despite the superb financials, a big concern is the shrinking usage of cigarettes in many countries, which accounts for a significant portion of BAT's revenue. However, the company does make 14% of its revenue from non-combustibles such as e-cigarettes and vapes, although it is unclear if these products can fully replace cigarettes.

At today's share price of £27.15, BAT seems like an inexpensive stock to buy, with a price-to-earnings ratio lower than it has been in years. The 0.81 price-to-book ratio also presents great value, with a nice margin of safety.

Not Investment Advice

Please note that the above article is for informational purposes only and should not be construed as financial advice. It is important to do your own research and seek professional guidance before making any investment decisions.