Should I buy Coca-Cola stock in October 2022?

Shares of The Coca-Cola Company (NYSE: KO) have weakened nearly 10% since August 25, 2022, and the current price stands at $58.60.

The risk of a further decline is still not ruled out, especially if the US stock market enters a more significant correction phase.

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The possibility of a global recession looks increasingly likely

The second quarter of 2022 was quite positive for Coca-Cola, and the company reported revenue and earnings above consensus analyst estimates.

Total revenue increased 11.9% year-over-year to $11.3 billion, $730 million more than expected, while non-GAAP earnings per share were 0.70 $ (beaten by $0.03).

Although the company has a strong market position and high pricing power, Coca-Cola shares are not undervalued and now is probably not the best time to invest in this company.

Coca-Cola is a dividend aristocrat with six decades of consecutive payout increases, but the current dividend yield of 3% doesn’t seem attractive enough to accept current yields, given intensifying global headwinds.

With a price-to-earnings ratio (or “P/E”) of 26.5, Coca-Cola is on the more expensive side of the market, given that many companies in the US stock market currently have lower P/E ratios. at 15.

According to the price-to-sales ratio (market cap/earnings), Coca-Cola shares are trading at 6.82, which is more than twice the price-to-sales ratio of PepsiCo, Inc. (NASDAQ:PEP), which trades at a P/S of 2.84.

Coca-Cola trades at more than nineteen times TTM EBITDA, while PepsiCo trades at fifteen times TTM EBITDA. To justify its current valuation, Coca-Cola would have to produce exceptional growth well above the market, which will not be easy.

Both companies continue to report tremendous consumer demand for their beverage segments; Nevertheless, it is important to mention that PepsiCo recorded an impressive growth in international markets of 55.78% during the second fiscal quarter, compared to Coca-Cola, which recorded a growth of 12.31% (this may be verified in the second quarter reports).

In its upcoming third-quarter earnings call on Oct. 26, 2022, Coca-Cola is expected to report revenue of $10.48 billion and earnings per share of $0.64, representing year-on-year growth. 4.38% annual revenue and a decline of -1.81. % for EPS.

On the other hand, PepsiCo is expected to record revenue of $20.71 billion and earnings per share of $1.83, representing annual growth of 2.58% and 2.31%.

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

The global economy could face a recession brought on by an aggressive wave of policy tightening that may yet prove insufficient to temper inflation. Policymakers around the world are rolling back monetary and fiscal support in a degree of synchronization not seen in half a century.

Technical analysis

Coca-Cola Company shares are down nearly 10% since Aug. 25. The price has currently broken below the 10-day moving average, indicating that the bottom is still not reached.

Data source: tradingview.com

If the price breaks below the $55 support, that would be a firm “sell” signal, and the next target could be strong support at $50.

On the other hand, if the price jumps above $65, it would be a signal to trade Coca-Cola shares, and the next target could be resistance at $70.

Summary

Coca-Cola stock remains under pressure, and if the US stock market enters a deeper correction phase, the stock price could be at much lower levels. Coca-Cola is a dividend aristocrat with six decades of consecutive payout increases, but the current dividend yield of 3% doesn’t seem attractive enough to accept current yields, given intensifying global headwinds.

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