Monday, April 17, 2017

Can Coca-Cola Ever Be a Bad Investment?

Logo of Coca-Cola Bottle on the cap of the bottle

Actual Question:

Will Coca-Cola (KO) ever be a bad investment?


Dear Friend!

A very good question.

Coca-Cola is a wonderful company. It is not only in the kitty of Warren Buffett but he often quotes Coca-Cola in his interviews.

Since there are many hurdles in making direct investments in the US for Indians, I had not bothered to study the stock.

Since you had raised the question I looked up the stock. Let us see how it is.

Market snapshot of Coca-Cola stock on NYSE

It is trading at a price to earnings ratio of 28.86. This is quite expensive. This simply means that at the present level of earnings it will take more than 28 years to recover your investment. The normal norm is 15, ideal is below 10.

At the same time, actually it is not very expensive. Many good companies but that are not as wonderful as Coca-Cola are trading at much higher valuations in India and people are investing too. Lets us look at the table below:

Table showing six good but expensive Indian stocks

In conclusion, buying a wonderful company like Coca-Coal at a ridiculously expensive valuation like a PE of 82 times could make the investment bad.
At present Coca-Cola does not seem to be ridiculously expensive. Kindly note that I could not check the price to book value ratio, etc.
Suggested Further Reading:

Thank you,
With Best Regards