Stock Analysis

Is Coca-Cola Consolidated, Inc.'s (NASDAQ:COKE) Latest Stock Performance Being Led By Its Strong Fundamentals?

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NasdaqGS:COKE
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Most readers would already know that Coca-Cola Consolidated's (NASDAQ:COKE) stock increased by 3.7% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Coca-Cola Consolidated's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Coca-Cola Consolidated

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Coca-Cola Consolidated is:

32% = US$331m ÷ US$1.0b (Based on the trailing twelve months to September 2022).

The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.32 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Coca-Cola Consolidated's Earnings Growth And 32% ROE

Firstly, we acknowledge that Coca-Cola Consolidated has a significantly high ROE. Secondly, even when compared to the industry average of 16% the company's ROE is quite impressive. Under the circumstances, Coca-Cola Consolidated's considerable five year net income growth of 45% was to be expected.

Next, on comparing with the industry net income growth, we found that Coca-Cola Consolidated's growth is quite high when compared to the industry average growth of 8.0% in the same period, which is great to see.

past-earnings-growth
NasdaqGS:COKE Past Earnings Growth December 1st 2022

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is COKE fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Coca-Cola Consolidated Efficiently Re-investing Its Profits?

Coca-Cola Consolidated's ' three-year median payout ratio is on the lower side at 4.7% implying that it is retaining a higher percentage (95%) of its profits. So it looks like Coca-Cola Consolidated is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Coca-Cola Consolidated has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with Coca-Cola Consolidated's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 1 risk we have identified for Coca-Cola Consolidated visit our risks dashboard for free.

What are the risks and opportunities for Coca-Cola Consolidated?

Coca-Cola Consolidated, Inc., together with its subsidiaries, manufactures, markets, and distributes nonalcoholic beverages primarily products of The Coca-Cola Company in the United States.

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Rewards

  • Price-To-Earnings ratio (14.7x) is below the US market (15.3x)

  • Earnings grew by 39.8% over the past year

Risks

  • Has a high level of debt

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