The proportion of Cola (WKN: 850663) is in high demand in times of inflation. Ultimately, management can currently use its own pricing power ideally. With moderate growth and a stable, strong and moderately growing dividend, the US beverage company is what many investors are currently looking for.
Still, it’s always a question of whether Coca-Cola now has the potential for a comeback. Inflation is not always likely to remain this high and pricing power is not always in demand. Let’s take a look at the current situation. In the end, there could be. But the big question is: How low can it go in the medium to long term?
Coca-Cola After Inflation: Looking for a Bottom
The fundamental valuation at Coca-Cola is likely to be the indication of how low the stock can fall. The stock is currently not grossly overpriced. With a yield of 2.8% and a forward price-to-earnings ratio of 25.2, the stock is certainly not cheap. This may mean that after the phase of moderate growth and utilization of pricing power, there may be a small step back.
Nevertheless, I believe: It should not go very deep. Coca-Cola is and will continue to be a popular, strong brand. The products are always sold, regardless of the state of the economy. In addition, the dividend stock is a dividend king. A certain premium always seems appropriate. Especially since many foolish investors are likely to pounce on significantly more favorable terms.
What could it be? I suspect a 3.5% yield would be one such possible valuation. That would mean there was a potential for a pullback of around 20%. The price-to-earnings ratio would then be around 20. If you want to plan even more conservatively, you can probably assume a 4% yield. Under this assumption, there would be around 30% possible correction potential, where the price-earnings ratio would then be around 17.8. I think a medium-term bottom would definitely have been reached somewhere here.
What is the opportunity, what is the risk?
Because of the quality, the strong dividend and the timeless brand with pricing power, I am convinced: Coca-Cola is an interesting company-oriented stock. The risk is probably lower. Of course, 20 or 30% is not insignificant. Nevertheless, we must also ask the question: what is the return potential under the current conditions?
Here, too, I believe that as an investor you can either buy now and expect a small downside potential. Or that you have to wait a bit for Coca-Cola. For example, a 3% yield might be a good place to start your investment journey.
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Vincent owns shares in Coca-Cola. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola.