Global tobacco giant British American Tobacco (BTI 0.64%) has advantages over rivals Altria Group (MO 0.68%) and Philip Morris International (PM 0.02%) that should keep it competitive, but there are risks, too, that might undermine the opportunities.

Let's take a look at both sides to see whether the owner of the Newport, Lucky Strike, and Pall Mall cigarette brands, as well as the Vuse and glo iFuse electronic cigarettes, is a stock that investors ought to buy.

A display of Vype brand electronic cigarettes

British American Tobacco has several brands and styles of e-cigs on the market, including Vype. Image source: British American Tobacco.

The good side

In 2008, Marlboro maker Altria split in two, with Altria taking control of the company's sales in the U.S. market while Philip Morris took over international markets. Today, Marlboro is by far the largest brand in the U.S. with a 43.1% share, while Altria as a whole has a 50% share. Philip Morris cigarettes are sold in more than 180 markets, and in many of them, its brands hold the No. 1 or No. 2 market share position.

However, British American Tobacco, particularly after its acquisition of Reynolds American, is a truly global tobacco company able to sell in both U.S. and foreign markets, which gives it greater geographical diversity. It has also seen its global share of the cigarette market increase since the merger, now standing at 34.7%, a 20-basis-point gain on 2016. In particular, its U.S. brands have seen their share grow by 40 basis points, with Newport and Natural American Spirit becoming the fastest-growing premium brands on the market, and Camel increasing its share thanks to the strength of its menthol brand. The tobacco giant is also seeing gains in noncombustible tobacco products, with moist snuff enjoying a share gain of 100 basis points.

Elsewhere around the globe, even though volumes are falling, just as they are for the industry, British American Tobacco is still tacking on share growth.

In the area of cigarette alternatives, electronic cigarette and vapor products are the next big thing, and though JUUL Labs has come to dominate the U.S. market with its thumb-drive-like JUUL device, and Philip Morris owns the Japanese market (arguably the biggest and most important foreign market) with its IQOS heated tobacco unit, British American's own Vuse product maintains a healthy (though dwindling) share of the market. Its glo iFuse heat-not-burn device is beginning to gain traction as well where it's been introduced.

And let's not forget the dividend the global tobacco company pays, yielding a robust 6.5% currently.

The not-so-good side

The fact is, British American continuously plays second fiddle to Altria and Philip Morris everywhere except the U.S. menthol cigarette market, where the Newport brand holds a dominant share. And that leadership is threatened with the FDA poised to ban the sale of menthol cigarettes in a bid to stop teen use. With cigarette volumes falling globally, a ban would cut into British American's revenues.

Moreover, the European Union has a ban on menthol cigarettes kicking in in May 2020, meaning the tobacco company is going to see the value of some of its biggest brands eliminated. There are still questions about just how a U.S. ban might be implemented, with some suggesting it would take several years before menthols were completely removed from the market, but the future doesn't look bright for this big revenue generator.

In the area of next-generation cigarettes, the FDA is cracking down on flavored e-cigs, and though this is expected to hit JUUL the hardest, potentially affecting 45% of its retail sales, limitations on flavors or where they are sold would hit all players.

British American is also behind Philip Morris in applying for a marketing application for the glo iFuse in the U.S. Philip Morris is expecting a decision on its IQOS device by the end of the year, which, coupled with the crackdown on flavored e-cigs that could knock out JUUL, could give this new device a significant head start. Just as Philip Morris did in Japan, where it now has an 80% share of all e-cig sales -- and e-cigs are estimated to be 20% of the total cigarette market -- the international tobacco giant could gain an insurmountable lead here.

The verdict

Shares of British American Tobacco are down over 40% from their 52-week high and trade at ridiculously low valuations. The stock goes for just 2.5 times trailing earnings and 10 times this year's estimates while trading at a fraction of its sales. While the price reflects some of the bad news afflicting the industry and the latest from the FDA, it's likely the final regulatory decision could make things worse.

With Altria and Philip Morris trading north of 16 times this year's earnings forecasts and many multiples higher on a trailing basis, the market is anticipating a rough road for British American ahead. Because the tobacco giant faces global headwinds too, I'd lean against an investment, as British American Tobacco stock may yet test lower lows.