Why did you choose to analyze this company?
I chose the Coca-Cola Company because of the apparent simplicity of its business: to sell sugary drinks to the world. They can do it better than anyone else and provide a good return to investors.
What were the opinions of some of your referenced articles on this stock as an investment?
One of the articles indicated that Coca-Cola was taking a hit from the Euro: the relative strength of the European currency versus emerging markets’ currencies explained a decrease in 2.7% of total revenue, despite an increase in total volume of sales (Coca-Cola Weakened by Strong Euro, 2016).
Other two articles pointed to a more serious long-run threat: the imposition of a sugar tax in Mexico. Soares (2016) tells of an imposition of a 1 peso-per-litre (US$ 0.06) tax on sodas or sugary drinks, which was introduced in January 2014, to fight obesity and type 2 diabetes. Another article indicates that the strategy was successful from a health standpoint, as the soda tax had significantly affected the overweight and obesity rates in that country (Lopez, 2016). Both articles pointed out that other countries were looking at the Mexican experiment, which could harm Coca-Cola revenues in the long run.
Is an investment in the stock a higher or lower risk investment than an investment in other stocks as a whole? Why or why not?
The company’s beta is 0.82 (Yahoo Finance, 2016), which indicates a risk lower than the market. Furthermore, when one looks at brand awareness – this business is based on marketing and distribution – it is clear that the Coca-Cola brand is stronger than its main rival, Pepsi. In fact, investor Warren Buffet was quoted saying that if someone gave him $100 billion with the mission of taking away the soft drink world leadership of Coca-Cola he would return the money saying it could not be done (Brownlee, 2016). Coca-cola is one of Buffet’s primary examples of an “economic moat,” a feature that gives that business a unique and enduring advantage over its competition, thus protecting its profits and market share. In the case of Coca-Cola, this vast, bigger-than-$100-billion moat – according to Buffet – is brand awareness (Brownlee, 2016).
The major concern I would have, as a Coca-Cola investor, would be negative impacts on future revenues because of health trends or sugar taxes, as previously described.
How large is the company in relation to its competitors?
If we consider this business is based on brand awareness, it is much bigger than its nearest competitor, Pepsico. Furthermore, because of the brand awareness, it can grow faster than Pepsico: many beverages that belong to the Coca-Cola Company, even by means of acquisition (as bottled waters, juices, etc.), started to use the Coca-Cola logo to represent the quality of said beverage. This is an asset that Pepsico does not have – one would be hard pressed to remember the Pepsi logo.
If we look into the world market share of carbonated beverages as of 2015, Coca-Cola had 48.6% while Pepsico had 20.5% (Statista, 2016).
How fast is the company growing?
Despite a mild decline in total revenue in the past three years, the Coca-Cola Company stock price has steadily increased in a five-year and a ten-year period (Yahoo Finance, 2016). In other words, it is still growing, despite its behemoth size.
How profitable is the company?
Extremely profitable. Its most valuable asset is its brand (and the logo), which requires major marketing investments – Coca-Cola is present at the World Cup and the Olympics, among other many other significant events. Production, bottling, and distribution are in the hands of affiliated or third-party companies. In 2015, its profit margin was 17.61% and its operating margin, 23.30% (Yahoo Finance, 2016).
What is the company’s price to earnings ratio? What does this tell you about the company?
Trailing P/E is 24.94, while forward P/E is 21.57 (Yahoo Finance, 2016). This number indicates that investors expect future higher earnings growth, in comparison with companies with a lower P/E ratio.
Does it have a dividend? If so, what is the dividend yield?
Yes, the Trailing Annual Dividend Yield is 3.13%, according to Yahoo Finance (2016), above its 5-Year Average of 2.83%.
Does the future of the company appear to be promising?
Yes. Beside Buffet’s economic moat, which shies away many threats now and in the future, the P/E ratio indicates that most investors expect high earnings growth. As previously stated, the primary concern is the imposition of sugar taxes or other health measures that intend to decrease sugar intake.
On which exchange does the company trade and what is its ticker symbol?
NY Stock Exchange, with ticker symbol KO.
Do you recommend or not recommend this company’s stock as an investment for investors that are considering stock investments? Why?
Yes. In a nutshell:
Its brand-and-logo combination offers a tremendous defense against competitors (Buffet’s moat).
The brand awareness is also used as a pivot to leverage growth – any acquired company is more valuable with the Coca-Cola logo in its products than Pepsi’s
The company has a low beta, high P/E, and always pays dividends – which are the ultimate proof that money is being made.
References
Brownlee, A. (2016). The Coca-Cola Co vs. Hard Root Beer: Warren Buffett's Economic
Moat Explained. Fool.com. Retrieved 2 September 2016, from
http://www.fool.com/investing/general/2016/02/21/the-coca-cola-co-vs-hard-root-beer-
warren-buffetts.aspx
Coca-Cola Weakened by Strong Euro. (2016, May 13). The Evening Standard (London,
England). Retrieved from Questia.
Lopez, A. R. (2016). Mexico's Sugar Crusade: Looking Forward. Harvard International
Review, 37(3), 48. Retrieved from Questia.
Soares, A. A. (2016). Putting Taxes into the Diet Equation. Bulletin of the World Health
Organization,94(4), 239. Retrieved from Questia.
Statista. (2016). Coca Cola: beverage market share 2015. Statista. Retrieved 2 September
2016, from http://www.statista.com/statistics/387318/market-share-of-leading-
carbonated-beverage-companies-worldwide/
Yahoo Finance (2016). KO : Summary for Coca-Cola Company (The) Common - Yahoo
Finance. Retrieved September 02, 2016, from
http://finance.yahoo.com/quote/KO?ltr=1
