You have to hand it to Big Tobacco.  As an industry, it’s a survivor.  It’s doing everything it can to reinvent itself in a world in which its core product—cigarettes—becomes more of a social pariah with every passing year.  Let’s take a look at what Big Tobacco is up to and what it might mean for investors in Big Tobacco stocks.

Reynolds American (RAI) made headlines this week by announcing the planned launch of the Revo, a “safe” cigarette that heats tobacco rather than burning it. Philip Morris International (PM) has a similar product in the works for sale overseas, which I highlighted earlier this year.

Yogi Berra, the Hall-of-Fame  New York Yankee catcher, might have called this a case of déjà vu all over again. Reynolds American launched a similar product two decades ago, but it never amounted to much. (Yogi Berra, incidentally, was once a celebrity endorser of Camel cigarettes, a Reynolds American brand.)

E-cigarettes work in roughly the same way. Tobacco is heated rather than burned, and the smoker inhales a relatively harmless nicotine-infused vapor rather than a cloud of carcinogenic smoke. The benefit of the Revo is that it looks and feels more like a real cigarette than its electronic competitors do. And while it’s far too early to be breaking down profitability, I think it’s safe to say that Revo is a better profit model for Big Tobacco. Revo is a real, branded cigarette sold in a pack that can be sold at a premium, not a generic bottle of refill fluid.

I’ve been skeptical of e-cigarettes for a long time. Yes, they could relight Big Tobacco’s prospects. But they are just as likely to speed the decline of traditional cigarettes, and Big Tobacco has no durable competitive advantage in the e-cigarette marketing free-for-all.

So, are Revo and its competitors the answer for Big Tobacco?

Not so fast.  One of the reasons that Revo’s predecessor failed was that multiple states sued Reynolds American for claiming that it was less harmful than a traditional cigarette.  Those claims were unsubstantiated by real studies. So, Reynolds will have to be careful in how it markets Revo this time around the wrath of regulators.  But neutering the marketing will make it a lot harder to build a following among smokers.

In a best case scenario, Revo might steal a little market share from traditional cigarettes and slow down the long-term decline of the industry.  But that is the best case, and even under this scenario Big Tobacco volume sales would continue to decline.  The more likely scenario is that Revo is a marketing flop that is forgotten in a year or two.

From the tone of this article, you might think that I’m a dyed-in-the-wool Big Tobacco bear. Nothing could be further from the truth. At the right price, industries in terminal decline can be great investments if management focuses on returning value to shareholders via dividends and buybacks. But the key is “at the right price.”  And right now, Big Tobacco stocks are expensive.

Reynolds American trades for 21.5 times trailing 12-month earnings…and at a cyclically-adjusted price/earnings ratio (the “CAPE” or “Shiller P/E”) of 26.0 times earnings.  The numbers for domestic rival Altria (MO)  are 22.5 and 24.3, respectively.  As a point of reference, the S&P 500 trades at 20.0 times trailing earnings and 26.6 times CAPE—a valuation that is 60.2% above its long-term average.

In other words, U.S. stocks are very expensive by historical standards, and Big Tobacco stocks are only a hair cheaper that the broader market.  And again, this is an industry in terminal decline—which should be trading at a substantial discount to the market average.

In the interests of full disclosure, I have very small positions in Altria and Philip Morris International that I have held for years in a long-term dividend reinvestment portfolio.  But I’m not adding any new funds to either, and I recommend steering clear of Big Tobacco at current prices.