Another solid trading statement has just propelled British American Tobacco‘s (LSE:BATS) share price to new multi-year peaks. Total gains since the start of 2025 are 18%, making it one of the FTSE 100‘s best performing shares over the period.

Yet at £34.97, the tobacco titan remains 38% lower than the record peak of £56.44 struck in the summer of 2017. And as the broader tobacco industry remains in steady decline, doubts persist over whether it will ever reclaim those heights.

British American’s first-half update on Tuesday (3 June) gave more optimistic investors reason for cheer. The firm upgraded its sales guidance thanks to strong momemtum among its non-combustible products.

Mark Crouch, analyst at eToro, noted that

Investors don’t seem put off by the long-term global decline in smoking rates and are instead placing their faith in [British American’s] transition to smokeless alternatives.

So should investors consider opening a position in the FTSE company?

Sales upgrade

In this week’s update, British American said that sales for the first half of 2025 are so far “slightly ahead of our previous guidance“, meaning full-year growth is now tipped at 1%-2%, up from 1% previously.

Critically in the US, its largest single market, the business said it expects to return to growth for January-June as well as for the full year. Though the wider combustibles industry continued to decline (down 9% in the first half), the business said “we have stabilised our total industry volume and value share“.

Among British American’s smokeless ranges, performance was strong among its Velo nicotine pouches. Industry growth and volume share gains (up 350 basis points in the modern oral segment, to 29.7%) resulted in double-digit turnover growth.

However, sales were far less impressive for its Vuse e-cigarette brand — the firm’s expecting a “mid-teens revenue decline” for the first half, reflecting the widescale use of illicit single-use vapes in the US and Canada.

Big risks

The market may have broadly liked what British American had to say. But I remain far from convinced by what I see.

Without doubt, the company’s next-generation technologies are the key to future earnings. Yet sales of Vuse remain under intense pressure from the illegal e-cigs market, and while Velo revenues are booming this remains a tiny part of the overall business.

What’s more, tightening regulations on their sale and usage pose another significant threat to their widescale adoption, as the severe decline in the traditional cigarette market shows. With their far weaker margins, British American’s future profitability may disappoint even if demand for Vuse et al lights up.

According to eToro’s Mark Crouch:

It’s important not to overlook the scale of the challenge ahead… combustible tobacco products still account for over 80% [of revenues], and the company’s ambition to become “smokeless” by 2035 raises questions about whether new categories can generate comparable returns.

Today, British American Tobacco shares trade on a forward price-to-earnings (P/E) ratio of 10 times. This is just below the decade-long a average of 10.9 times, but still not cheap enough given the company’s enormous risk profile, in my view. I think investors should consider giving the business a wide berth.