Actual Question:
Will Coca-Cola (KO) ever be a bad investment?
Answer:
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.
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:
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:
- What are the Hurdles to Invest and Earn Dividends from
Foreign Markets?
- How to Invest in Overseas Stock Markets?
Thank you,
With Best Regards
Anand