Should I Buy Coca-Cola Stock in October 2022?


The Coca-Cola Company (NYSE: KO ) stock price has fallen nearly 10% since August 25, 2022 and currently stands at $58.60.

The risk of a further decline is not yet eliminated, especially if the US stock market enters a more pronounced correction phase.

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The probability of a global recession is increasing

The second quarter of 2022 was quite positive for Coca-Cola, with the company reporting revenue and earnings that beat analysts’ consensus estimates.

Total revenue rose 11.9% year-over-year to $11.3 billion, beating expectations by $730 million, while earnings per share

Despite the company’s strong market position and high pricing power, Coca-Cola stock is not undervalued, and this is probably not the best time to invest in this company.

Coca-Cola is a “dividend aristocrat” with six decades of consecutive dividend increases, but its current dividend yield of 3% does not seem attractive enough to support current dividends given rising global headwinds.

With a price-to-earnings (P/E) ratio of 26.5, Coca-Cola is on the more expensive side of the market, as many companies on the US stock market currently trade below 15 times P/E.

On a price-to-sales basis (market cap/sales), Coca-Cola shares trade at 6.82, which is more than double the price-to-sales ratio of PepsiCo, Inc. (NASDAQ:PEP), trading at a price-to-sales ratio of 2.84.

Coca-Cola trades at more than 19 times TTM EBITDA, while PepsiCo trades at 15 times. To justify its current valuation, Coca-Cola needs to deliver stellar, well-above-market growth, which won’t be easy.

Both companies continue to experience tremendous consumer demand for their beverage segments; Still, it’s important to note that in the second quarter of the fiscal year, PepsiCo posted an impressive 55.78% growth in international markets, while Coca-Cola reported a 12.31% growth (check out their Q2 reports).

Coca-Cola is expected to report revenue of $10.48 billion and EPS of $0.64 in its upcoming third quarter earnings on October 26, 2022, up 4.38% on sales and a -1.81% decrease in earnings per share.

On the other hand, PepsiCo is expected to report revenue of $20.71 billion and earnings per share of $1.83, up 2.58% and 2.31% year-over-year, respectively.

Bad economic news continues to keep investors in a negative mood, and if the US stock market enters a more significant correction phase, Coca-Cola’s share price could be at much lower levels. The World Bank warned in a recent report that the likelihood of a global recession is increasing. The World Bank reported:

The global economy may face a recession caused by an aggressive wave of monetary tightening that may prove insufficient to curb inflation. Policymakers around the world are scaling back monetary and fiscal policy at a rate not seen in half a century.

Technical Analysis

The Coca-Cola Company’s stock price is down nearly 10% since August 25th. The price has currently been trading below the 10-day moving average, suggesting that the bottom is yet to come.

Data source: tradingview.com

If the price breaks below the $55 support, it would be a clear sell signal and the next target could be the strong $50 support.

On the upside, a price rise above $65 would be a signal to trade Coca-Cola stock, and the next target could be the $70 resistance.

Summary

Coca-Cola shares remain under pressure, and if the US stock market enters a more significant correction phase, the share price could be at much lower levels. Coca-Cola is a “dividend aristocrat” with six decades of consecutive dividend increases, but its current dividend yield of 3% does not seem attractive enough to sustain the current dividend given the increasing global headwinds.

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