Why Take Caution with Fast Moving Consumer Goods?

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Fast moving consumer goods are products that you see and utilize probably almost every day. This is the sector that encompasses food, beverages, personal care and many others. In this article, you will be able to learn about these consumer goods and why you should take caution when it comes to these.

What are Fast-Moving Consumer Goods?

As mentioned earlier, these are consumer goods that are being sold quickly at quite a low cost. Some common examples are milk, gum, fruits and vegetables, toilet paper, beer, soda and even over-the-counter drugs. They are commonly abbreviated as FMCG.

These goods have short shelf lives. The profit margin, too, is low – however the bulk or volume of sales is the one making up for it.

When it comes to FMCG, they are in general considered as low-growth. However, they are considered as safe bets with foreseeable margins, stable profits and consistent dividends. They comprise half of the consumer spending.

Who uses Fast-Moving Consumer Goods?

Almost everyone from the developed and developing countries is using these consumer goods every day. These are usually bought at the grocery, supermarket or even in a warehouse outlet.

Why take caution with FMCG?

Experts say that this sector is believed to be defensive since the demands in stocks are usually high especially when the markets are dropping. It is understood that no matter the status of the market or how bad the economy performs, the demand for daily consumer goods keep on being stable.

Indeed, during tough times people will trim down unnecessary expenses to be able to purchase the basic essentials.

It is true that FMCG stock indices are doing really well, but there are a number of negative concerns surrounding the said sector nowadays.

Analysts say that stocks in this sector are trading higher than the usual and maintaining it would definitely be demanding. They are also looking on the difficulty when it comes to expansion. The price to earnings ratio (defined as the value of a stock versus the measure on how much the market agrees to pay for it match up to the company’s earnings), too, is seen to be going down.

Fast markets are magnetizing competition, too. This then cuts profits since the market is filled with a variety of options where consumers can choose from.

Also, there are other sectors that are growing as rapid as the FMCG sector. The raw material prices, too, are seen as another factor that can make or break the sector. When raw material prices are rising, companies are feeling the burden, but when the opposite happens, companies make a comeback.

Conclusion

The sector would continue to grow but experts say that it is high time for profit aside from investing. There has been a prediction that FMCG stocks can yield negative returns sooner or later.


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