The stock market has been choppy in 2025. Dipping and soaring seemingly each month, the S&P 500 index is basically now flat this year. Philip Morris International (PM 1.21%) has gone straight up and to the right. Shares of the international nicotine giant have posted a 50% total return so far in 2025, making it one of the best-performing large-cap stocks of the last few months and crushing the index returns.

It is a heavy dividend payer and benefiting from multiple tailwinds that should drive earnings much higher in the years to come. But is the stock still a buy today?

A person walking while hitting a vaping device.

Image source: Getty Images.

Betting on new-age nicotine, dollar depreciation

Philip Morris International's returns are a cumulation of bets made over the past 10 years. The company rightfully saw that cigarette usage was declining around the world and pivoted its business to other nicotine products that are seeing strong consumer adoption. In the heat-not-burn category it has the leading brand called Iqos with 77% volume share in the markets it operates, making it the dominant player in the space. In nicotine pouches it owns the leading brand in Zyn with similar market share characteristics.

Combined, Iqos and Zyn have changed the complexion of Philip Morris' business. Last quarter, 42% of the company's revenue came from smoke-free products, and 44% of gross profit. Higher gross profits from alternative nicotine products shows the better unit economics these brands have compared to cigarettes, which is a high bar. This is why Philip Morris' overall revenue has inflected higher in the last few years to $38 billion over the last 12 months.

On top of its lead in new nicotine products, Philip Morris International is benefiting from a weaker U.S. dollar. The Dollar Index has fallen from around 110 to under 100 to start 2025, which shows the U.S. dollar depreciating compared to other currencies. Philip Morris International does not operate in the United States except with its Zyn brand (and with Iqos in the future), meaning that a depreciating dollar will help it earn more in revenue in U.S. dollar terms. Wall Street has anticipated this boost to revenue, adding more fuel to the stock price to start the year.

Don't forget about traditional tobacco

Management at Philip Morris International made the brilliant move of investing in alternative nicotine products ahead of the competition. Cigarettes are going the way of the horse and buggy, likely becoming a smaller part of this business every year going forward.

This does not mean the segment cannot generate heaps of cash flow for the next few decades. Outside of China and the United States -- where Philip Morris International does not operate for cigarettes -- global cigarette usage is expected to decline by 1% in 2025. Through pricing power, cigarettes can deliver revenue and earnings growth for Philip Morris International for a long while. This isn't the United States where volumes are declining by around 10% a year. Last quarter, combustibles gross profit grew 5.3% year over year for the company.

Cigarettes are not dead yet. Especially not in the international markets where Philip Morris International operates.

PM PE Ratio (Forward) Chart

PM PE Ratio (Forward) data by YCharts

Can Philip Morris keep delivering monster returns?

After delivering such strong returns to start 2025, investors may wonder if the stock's best days are behind it. Let's dive into the valuation to analyze whether that is true or not.

The stock's forward price-to-earnings ratio (P/E) has risen to 24 compared to 14 at the start of last year. Its dividend yield is now 3% compared to close to 6% a year ago. Both these metrics make Philip Morris International stock more expensive in a vacuum compared to a year ago.

Since price matters in investing, this rising valuation indicates to me that these monster 50% returns in less than a year are not sustainable for Philip Morris International stock. However, this does not mean the stock is a bad buy today. It still has a solid dividend yield of 3%, can keep growing its dividend payout, and trades at a P/E ratio around the market average. With the growth of Iqos and Zyn along with the pricing power of cigarettes, revenue and earnings can grow at a double-digit rate for many years into the future.

This should lead to solid long-term returns for Philip Morris International shareholders. Just don't expect the same spectacular returns of the last few months.