About The Coca-Cola Company
Iconic.
1886.
It all started with a pharmacist in Atlanta, Georgia by the name of John S. Pemberton, who had previously owned his own chemical company, whose bookkeeper happened to be a man by the name of Frank Robinson, who reportedly chose the name for the drink as well as the accompanying wavy lettering hugging the outside of the cherry red bottle.
We sure hope Mr. Robinson had a stipulation in his employment that stated that he and his descendants would be entitled to royalties from each bottle sold.
Although such an ultra-secretive recipe, it does seem to be known that syrup is a vital ingredient within the sweet, bouncy taste that quite literally is a Coke. Additionally, it is said that Robinson got the idea to call the beverage Coca-Cola due to the recipe also including coca leaf extract mixed with caffeine from the kola nut.
Robinson seemingly set the stage for the drink to morph into what it has become today.
A cultural portrait.
A societal emblem.
A very, very tasty drink.
That is Coke.
Today, however, the company isn’t just Coca-Cola anymore, in terms of brands under the name.
It’s a little more than that.
Specifically, The Coca-Cola Company, while thankfully still home to the original beverage that put the company on the map (and also, you can’t forget about Diet Coke), is also home to premier beverage brands such as Bodyarmor, Dasani, Fairlife, Fanta, Fresca, Gold Peak Tea, Minute Maid, Powerade, Simply, Schweppes, Smartwater, Sprite, Topo Chico and Vitaminwater.
The Coke brand is impressive in its own right, however, owning the aforementioned brands and their associated recipes speaks to the company’s massive, massive and did we happen to mention massive, brand power and global presence.
From multi-year sponsorships with well known organizations and entities around the world to completely putting on display how successful global beverage vending is done, it’s almost difficult to not be near one of the company’s premier beverages.
Your neighborhood gas station, virtually any local dining establishments, both small venues as well as national and global chains, seemingly any sporting event, practically any beverage vending machine and essentially every other place of business all serve as avenues through which you can get your dose of a refreshing Coke, or, of course, any one of its other brands.
Lastly, before getting to the good stuff, we would be remiss if we neglected to mention the fact that The Coca-Cola Company (NYSE: KO) doesn’t just make money from the mere sale of each bottle, but it also makes money from selling syrups and concentrates to bottling facilities across the globe.
We figured we’d bring this up since it speaks highly of the company’s brand value, which in many regards is rooted within its treasured, smooth but fizzy flavor.
In a resounding sense, this hedges The Coca-Cola Company from many consumer-centric recessionary pressures.
As long as the beverage(s) tastes as good as it did before and people are still drinking them combined with the value of the Coca-Cola brand remaining strong along with its extraordinarily valuable intellectual property (primarily, its recipe), it’s hard to outline a scenario where the company and its products (and its ubiquity for that matter) cease to exist.
All things considered, recipes and sales through its many outlets is the name of the game for The Coca-Cola Company.
Now, let’s put our logical, objective investor hats on and figure out whether or not this company’s stock is worth buying now and holding indefinitely.
Coca-Cola’s stock financials
Currently pegged at a share price of just north of $60, The Coca-Cola Company has a prevailing market capitalization of $262.5 billion, a price-to-earnings (P/E) ratio of 26.52 all while distributing an annual dividend of $1.76 to its shareholders.
Given this initial information, Coca-Cola’s share price is a bit ahead of its intrinsic value, as its present P/E ratio signals that the company’s stock is overvalued, as it trades above the fair value benchmark of 20.
However, one can note that while shares in the company’s stock are objectively overvalued, these two figures don’t diverge by much, which is a good thing for more long-term, value-oriented investors.
Nevertheless, for those strictly seeking to invest in Coca-Cola’s stock at a discount relative to its valuation, it might be best to stay on the sidelines for now and let the recession take its toll on valuations across the board.
All of this being said, let’s see how compelling this company’s financials are and figure out whether or not it’s worth paying a modest premium for shares in The Coca-Cola Company’s stock.
With regards to the company’s balance sheet, Coca-Cola’s executive team is tasked with properly handling and managing around $94.3 billion in total assets as well as total liabilities in the neighborhood of $71.3 billion.
Frankly, this company’s balance sheet is far more stellar than we had initially anticipated.
Namely, even after all of the macro-related stressors imposed on this company (and of course, others), it has still managed to keep the books asset-heavy and thus prepare itself for the turmoil that definitely is to come.
Moving onto the company’s income statement, Coca-Cola’s total revenue over the last five years has been as consistent as expected. For instance, the company’s total revenue has remained, unlike its drinks, fairly flat, range-bound between $33 billion (2020) and approximately $38.6 billion (2021).
This certainly isn’t a negative, especially for a company as tenured in the beverage space as The Coca-Cola Company and for those looking to derisk (but, of course, not completely) their overall investment portfolios by adding some more defensive, recession resistant stocks to the mix, according to its balance sheet Coca-Cola is a means of doing so.
As it relates to the company’s cash flow statement, both Coca-Cola’s net income and total cash from operations have been positive and growing overall, which to us is a simple indication that the company’s executives are remaining disciplined and through their discipline and execution, have been able to consistently carve out plenty of cash from its operations as well as grow its net income over time, which is no small accomplishment given the multitude of challenges Coca-Cola and other (small or large) businesses have had to face and continue facing.
As a reference, Coca-Cola’s net income stood at nearly $1.3 billion in 2017 and has since risen to a whopping $9.8 billion, as reported in 2021, which is extraordinary net income growth during periods of economic uncertainty and slowdown.
Coca-Cola’s stock fundamentals
Clinching nearly 47% of the entire beverage market share in the United States has its perks.
One of which is the ability to nab a considerably higher trailing twelve month (TTM) net profit margin than that of the industry’s average.
The Coca-Cola Company does this and then some.
Particularly, the company’s TTM net profit margin currently hovers at 23.53% to the industry’s average of 14.96%.
This is a bit better than expected, but all things considered, not all that surprising.
However, the fact that Coca-Cola has been able to keep its annual net profit margin nice and wide speaks again to the company’s brand power as well as its leadership and its more than solid execution.
And of course, a note of appreciation is in order for the thirsty, soda-crazed consumers of the world, including some of the founding members of MacroHint.
Lastly, according to TD Ameritrade’s platform, Coca-Cola’s TTM returns on assets and investment are both higher than that of the industry averages, which is another stellar, confidence invoking signal.
Should you buy Coca-Cola stock?
It is very unlikely that one will be able to score a 100%+ return with Coca-Cola’s stock (NYSE: KO) over the next ten years.
Although assuredly not impossible, this is a massive business with a lot of moving parts and a seemingly demanding, ever-changing consumer to constantly try to figure out.
Make no mistake about it, this is actually sort of a tough call on our part.
Nevertheless, in the interest of remaining disciplined to the aforementioned financial figures, especially keeping in mind that the company’s stock price is currently a bit higher than its true intrinsic valuation, it makes most sense to give Coca-Cola’s stock a “hold” rating at the moment.
However, given the company’s TTM net profit margin and accompanying core returns, its global footprint, scale and runway for future growth with both its current and future brands, we completely understand those who wish to invest in the stock at a slight premium in order to start collecting a dependable dividend each quarter sooner rather than later.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.