Where will the Coca-Cola stock be in 5 years?

Coca cola (K.O 0.66%) is one of the most recognized brands in the world. It has long led the soft drinks market thanks to its global reach and wide range of products. But that hasn’t necessarily been beneficial for investors lately.

Over the past five years, Coca-Cola has generated a total profit of only 47%. The S&P 500on the other hand, it would have doubled your initial capital in the same period.

Shareholders are wondering if better days are ahead for the drinks giant. Where will it be dominant stock of drinks be in five years?

Nowhere to grow

Investors need to realize that Coca-Cola is not going to report huge growth numbers. It’s the opposite, actually. Revenue totaled $12.4 billion in the latest quarter (the second quarter of fiscal 2024, ended June 28), which was a modest 24% increase from five years ago in Q2 2019.

Compared to fast-growing areas of the economy, Coca-Cola is a dinosaur. However, for what it’s worth, the business has taken market share over the years.

Conformable Wall Street Consensus analyst estimates predict that Coca-Cola will grow its earnings at a compound annual rate of 3.6% between 2023 and 2026. That’s certainly nothing to say.

But Coca-Cola is using a different strategy to move the needle to offset weaker unit volume growth. In the last quarter, for example, the prices of the company’s various products were 4% higher than in the same period last year (excluding markets that have very high levels of inflation). There is proven pricing power here.

Safe and stable

For investors who simply want peace of mind from the individual stocks they buy, there may not be a better company to own than Coca-Cola. I mentioned earlier that he possesses one of the strongest brands. It is this intangible asset that protects the company’s competitive position. And it helped Coca-Cola stay relevant in the minds of consumers for so long.

In addition to the strength of its brand, Coca-Cola is a safe business to buy and own because it is consistently profitable. The company’s operating margin has averaged a superb 27.6% over the past five years. It is better than a leading internet company like Alphabet.

Since the business is in a mature stage of its life cycle, there is not much opportunity to reinvest in growth initiatives. As a result, Coca-Cola returns large amounts of cash to shareholders. This helps in increasing returns for investors.

A key part of the investment thesis must focus on dividends. Coca-Cola’s annual payout has risen for 62 consecutive years, a streak that is still active. This is an incredible track record that highlights the durability and consistency of the company.

With its 400 million shares, Berkshire Hathaway is able to generate $776 million in annual passive income from Coca-Cola dividends alone. This is probably one of the main reasons why Warren Buffett is not selling its stake in the soft drink giant.

Don’t expect huge profits

Coca-Cola has not been a winning investment relative to the S&P 500. I see no reason why this trend won’t continue.

At the time of writing, the stock is trading at a price-to-earnings (P/E) ratio of 28. That’s more than the overall market. And it represents a premium to Coca-Cola’s three- and five-year average P/E multiples. This seems like a terrible entry point for potential investors.

Between now and August 2029, I’m confident that Coca-Cola will continue to produce a total return that underperforms the S&P 500. And that’s precisely why I’m not considering adding the business to my own portfolio.