Should You Reassess Coke Shares Following This Year’s Modest Gains?

Thinking about what to do with your Coca-Cola shares, or considering jumping in? You are not alone. With a name as legendary as Coke, it's always tempting to treat this stock as a long-term, set-and-forget investment. However, even brands with decades of steady performance deserve a closer look, especially as the market landscape evolves.

Recently, Coca-Cola's stock has been a bit of a mixed bag. Over the last week, shares have nudged up by 0.2%, but if you zoom out to the past month, they are down 4.3%. Year to date, investors are sitting on a 6.9% gain, while the one-year return is slightly negative at -3.4%. Looking back three years, you will find an impressive 31.5% growth, and over five years, Coca-Cola has delivered a healthy 52.4% return. In short, there is a compelling combination of steady long-term gains and short-term bumps for anyone watching this stock.

What is driving these moves? Many investors are recalibrating risk as global markets shift and consumer tastes continue to evolve. For a company like Coca-Cola, even subtle news, such as new product launches or shifts in beverage trends, can play a role in how the stock is perceived.

All of this creates an ideal opportunity to examine valuation more closely. According to our six-point checklist, Coca-Cola scores a 4, meaning it appears undervalued in four out of six key measures. But numbers only tell part of the story. Before you rush to a decision, let us break down these valuation methods and share a perspective that goes beyond the typical analysis.

Coca-Cola delivered -3.4% returns over the last year. See how this stacks up to the rest of the Beverage industry.

Approach 1: Coca-Cola Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This method gives investors a sense of what a stock is fundamentally worth, based on anticipated business performance.

For Coca-Cola, the current Free Cash Flow is negative at approximately $634.5 Million, reflecting recent spending or lower cash earnings. However, projections indicate a turnaround, with analysts forecasting Free Cash Flow to rebound and steadily grow into the future. By 2027, Coca-Cola’s Free Cash Flow is expected to reach around $13.4 Billion. Extrapolated estimates suggest the company could see over $19.9 Billion in Free Cash Flow by 2035 if growth trends continue.

When all these projected cash flows are discounted back to today’s value, the DCF model suggests Coca-Cola’s intrinsic value is $93.40 per share. With the present share price nearly 29.2% below this estimate, the numbers point to a significant undervaluation.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Coca-Cola.

Our Discounted Cash Flow (DCF) analysis suggests Coca-Cola is undervalued by 29.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Coca-Cola Price vs Earnings (PE Ratio)

The Price-to-Earnings (PE) ratio is one of the most widely used valuation tools for profitable companies like Coca-Cola. It works well because it directly connects the share price to the company’s actual earnings, giving investors a sense of how much they are paying for each dollar of profit generated by the business.

What counts as a “fair” or typical PE ratio can change depending on what investors expect for growth, as well as the perceived risks of a business. Generally, companies with stronger growth prospects and lower risk will trade at higher PE ratios. Slower-growing or riskier companies warrant a lower multiple.

Currently, Coca-Cola trades at a PE ratio of 23.35x. This is higher than the Beverage industry average of 17.70x, but just below the peer average of 26.00x. The proprietary “Fair Ratio” calculated by Simply Wall St is 24.46x. This suggests what would be reasonable for Coca-Cola right now while considering its earnings growth, profit margins, market size, risks, and other factors specific to the company.

The Fair Ratio is more reliable than simply looking at industry or peer averages because it recognizes Coca-Cola’s unique advantages and challenges. It also blends in market-wide conditions and company specifics such as growth expectations and risk profile.

With the current PE of 23.35x sitting close to the Fair Ratio of 24.46x, Coca-Cola stock looks fairly valued on this measure.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Coca-Cola Narrative

Earlier we mentioned that there is an even better way to understand valuation. Now let us introduce you to Narratives, a smarter, more dynamic tool for investors seeking a holistic view of a stock like Coca-Cola.

Rather than focusing solely on numbers, a Narrative brings your personal perspective or “story” about the company to life. It combines your assumptions for future revenue, earnings, and margins with your unique fair value estimate.

Narratives empower you to clearly connect Coca-Cola’s business outlook and catalysts, such as evolving beverage trends, macroeconomic shifts, or competitive threats, to a financial forecast and a resulting fair value. This helps you clarify why you believe the stock is a buy or sell at today’s price.

Available to all users on Simply Wall St’s Community page, Narratives are easy to create and track. They update automatically when new events, such as quarterly results or industry news, are released, so your insights stay fresh and relevant.

This approach gives you an actionable comparison between your calculated Fair Value and the live market Price. It enables you to make buy or sell decisions in real time as your Narrative evolves.

For example, some investors project a fair value for Coca-Cola as high as $78.70 per share if emerging markets and digital transformation deliver. Others are as cautious as $54.61 per share if growth proves elusive and margins are pressured.

For Coca-Cola, we’ll make it really easy for you with previews of two leading Coca-Cola Narratives:

🐂 Coca-Cola Bull Case

Fair Value: $71.00

Current Price is 6.9% below fair value

Revenue Growth Rate: 6.64%

• Views Coca-Cola as resilient with a proven, recession-resistant business model and growing appeal for income-focused investors because of its consistent dividends.
• Shows optimism about future digital transformation and expansion in emerging markets, but highlights that management must balance risks from evolving consumer preferences and regulatory challenges.
• Projects steady long-term growth, sustained margins, and ongoing buybacks, resulting in a fair valuation close to today's levels.

🐻 Coca-Cola Bear Case

Fair Value: $54.61

Current Price is 21.1% above fair value

Revenue Growth Rate: 5.5%

• Warns that Coca-Cola’s profit growth and high margins are based on non-recurring factors, with limited potential for further improvement or business diversification.
• Anticipates that EPS growth may slow and the P/E ratio could contract as mature core segments and lackluster international expansion limit upside potential.
• Notes risks from high payout ratios, a possible IRS tax bill, and potential regulatory or market headwinds that could put pressure on both dividends and valuation.

Do you think there's more to the story for Coca-Cola? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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