The Coca-Cola Company (NYSE: KO) is in a precarious situation right now. The soft drink giant’s stock tends to trade in close alignment with the S&P 500 (SNPINDEX: ^GSPC) market index, but things have changed this year. Coke’s shares took a tumble in October and have stayed down since then.
Coca-Cola’s year-to-date total return sits at 11% on Tuesday, December 3. The S&P 500 showed a total gain of 28% over the same period. Does this price drop make Coca-Cola a good buy or is it a dangerous warning flag — or something in between?
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Let’s check out what’s going on with Coca-Cola to help you find the right course of action with this classic blue-chip stock.
Coca-Cola’s latest earnings report started a price slide. Three weeks later, the stock had dropped 9% lower. The headline results were slightly better than expected, but there were a few issues bubbling under the surface:
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Despite an advanced hedging system, Coca-Cola is exposed to large financial challenges when foreign currency rates are moving quickly in relation to the U.S. dollar. This effect became a 9% headwind to Coca-Cola’s total sales in 2024. Inflation pressure in large soft drink markets such as Argentina, Venezuela, and Turkey should result in a lower but still significant revenue slowdown in 2025.
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The ingredients used to make Coke’s various drinks are getting more expensive over time. The same uncomfortable trend applies to bottles and cans, too. Coca-Cola is adjusting its prices to pass on some of these rising costs to the consumer, but going too far would hurt the end-market demand for Coke’s products. Like all other consumer goods businesses, this company walks a tightrope between shrinking margins and lower sales — and it’s harder to find the right balance in an unstable economy.
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The company’s sales growth has stalled out. Third-quarter revenues were 1% below the year-ago period’s. That’s not a good look when production costs are rising. Most investors expect business growth in the long run, and Coca-Cola isn’t delivering that quality right now.
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You might expect a slow-growing consumer goods stock to trade at very affordable valuation ratios, but Coke treads a different path. Whether you measure the stock’s worth by price to sales, price to earnings, or price to free cash flows, Coca-Cola shares trade at a generous premium to rivals like PepsiCo (NASDAQ: PEP) and Keurig Dr. Pepper (NASDAQ: KDP).
