Why did the Unilever share price plummet this week?

The Unilever (LSE:ULVR) share price has had a rough week. After publishing its latest trading report, it seems investors were less than impressed, which led to a 6% decline within 24 hours. That’s certainly not as volatile as some other stocks out there. But for a blue-chip consumer goods business, that’s a significant fall. So, what actually happened? And is this an opportunity to buy shares for my portfolio at a discount? Let’s take a look.

A seemingly decent half-year report

Despite what the fall in the Unilever share price might suggest, the half-year trading update was far from terrible. At least, that’s what I think. The underlying sales growth compared to a year ago beat analyst expectations, coming in at 5.4%.

Most of this was attributable to its rapidly expanding e-commerce channel, which grew by a further 50%. Its online sales remain a small portion of the overall revenue stream (around 11%), but they are important. So much so that the management team stated, “we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3-5%”.

Meanwhile, its latest acquisitions within its Beauty & Personal care products also appear to be paying off. The firm had recently added Paula’s Choice to its portfolio, among others. Collectively these contributed a 1.4% boost in total turnover despite the adverse effects of currency exchange rates. To me, this sounds quite promising. So why did the Unilever share price fall?

The falling Unilever share price

As encouraging as this sales performance is, there continues to be mounting uncertainty from investors surrounding inflation. This is something I’ve previously explored when discussing Tesco. Because governments worldwide are issuing enormous stimulus packages to reboot their economies, the level of inflation is on the rise. As a consequence, the prices of raw materials are up too.

Unilever has already started feeling the pressure from this. In fact, due to the rising prices of raw material commodities and logistical distribution costs, the firm’s profitability has started taking a hit. Its operating margins fell by 1%. And it seems that as inflation ramps up, this impact will only intensify.

The firm will more than likely start passing on these higher costs to consumers. However, doing so may impact sales growth as people look to cut down on spending. Needless to say, if either profits or sales are adversely affected by inflation, the Unilever share price could continue its downward trajectory.

The bottom line

The rising level of inflation is a concerning factor that will likely impact the entire consumer goods industry. However, the Bank of England expects that inflation levels will fall back to normalised levels in 2022 as the post-pandemic boost begins to slow.

If it is correct in this assumption, it means that this dip in profitability is ultimately a short-term problem. Therefore, to me, the recent collapse of the Unilever share price does look like a buying opportunity for my portfolio.

The post Why did the Unilever share price plummet this week? appeared first on The Motley Fool UK.

But its not the only stock I’ve got my eye on this week…

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

Since 2016, annual revenues increased 31%
In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

More reading

The ULVR share price crash: should I buy more?
What’s going on with the Unilever share price?
2 passive income UK shares to buy
3 FTSE 100 shares to buy today
3 stocks for beginners to consider

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.