This Warren Buffett Dividend King stock just hit an all-time high. Here’s why I still think now is the time to buy Hand Over Fist.

One of the longest standing positions in Warren Buffett Berkshire Hathaway the portfolio is Coca cola (K.O 0.42%). As of this writing, shares of the beverage stock are at all-time highs.

While this might make you think the train has left the station, I’d say now is a good time to pounce on your Coke stock.

Let’s explore the company’s performance and what could drive investor excitement. Moreover, after a thorough analysis of the whole picture, investors may come to see that it now looks like a profitable opportunity to pick up shares.

Assessing the financial health of Coca-Cola

Assessing Coca-Cola’s financial health can be a challenging exercise. On the one hand, revenue trends for consumer discretionary businesses tend to be volatile. Given that the macro economy has weathered a headwind of persistent inflation and high interest rates over the past two years, it’s no surprise to see Coca-Cola’s sales trends experience some dramatic peaks and valleys. Companies often struggle to maintain profit levels when revenue experiences inconsistencies.

But as I often encourage investors to do, taking a look further down the income statement can help you gain insight into a business beyond its revenue generation. Although Coca-Cola’s current revenue levels are on par with results 10 years ago, the company has made massive strides in margin expansion.

KO Revenue Data (Quarterly) by YCharts

As the charts below illustrate, Coca-Cola’s gross margin is showing some encouraging signs of improvement compared to levels even a year ago. Additionally, the company’s operating margins are significantly higher today than they were a decade ago.

KO Gross Profit Margin data (quarterly) by YCharts

Earlier this year, Coca-Cola announced it was investing $1.1 billion in generative AI applications and teaming up with Microsoft. The rationale behind the deal is to use Microsoft’s generative AI platform to help Coca-Cola identify new opportunities in marketing, supply chain logistics, bottling, manufacturing and more. By leveraging technology, Coca-Cola has a real opportunity to identify inefficiencies in its ecosystem and form new strategies to improve its operation on a global scale.

Coca-Cola appears well-positioned to continue to improve its profitability metrics, even if sales remain somewhat unpredictable. As a result, I wouldn’t be surprised to see the company’s earnings power improve, which could very well lead to increased enthusiasm for the stock.

Why now seems like a great time to buy Coca-Cola stock

The chart below shows Coca-Cola’s price-to-earnings (P/E) ratio over the past year. Given the steep slope of the P/E line, it’s clear that Coca-Cola has seen significant valuation expansion in a short period of time.

However, there is more than meets the eye when looking at Coca-Cola’s valuation.

KO PE report data by YCharts

Over the past two years, Coca-Cola stock has generated a total return of 16.7%, dramatically below the S&P 500its total return of 40.9%. This is important to note because it helps illustrate that even though Coca-Cola stock just hit an all-time high and the company’s P/E multiple makes the stock appear expensive, its overall performance over the past two years has outperformed the broader market.

To me, this signals that the stock is just now finding new life and could be a great buy as Coca-Cola enters a new phase of operational efficiency.

Image source: Getty Images

Sit back and enjoy the rewards

Note that one of the reasons Buffett has held on to Coca-Cola stock for decades is that the company is an extremely reliable dividend payer. In fact, Coca-Cola is a dividend king as it has increased its dividend payout for at least 50 consecutive years.

I don’t see this going away. Additionally, if Coca-Cola continues to demonstrate strong margin expansion and strengthen its profitability profile, the company will theoretically have excess cash that it can use for potential buybacks and, of course, more dividend increases.

Coca-Cola’s improved operating metrics could benefit significantly from managing the investments it is making in a conscious effort to achieve even greater efficiencies. Despite the recent rally, I now see a great opportunity to buy Coca-Cola stock and set up to hold on for the long haul.