Coca-Cola has been treading water for the past six months, recording a small return of 2.8% while holding steady at $71.48. The stock also fell short of the S&P 500’s 17.2% gain during that period.
Given the weaker price action, is now a good time to buy KO? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free for active Edge members.
Why Does KO Stock Spark Debate?
A pioneer and behemoth in carbonated soft drinks, Coca-Cola (NYSE: KO) is a storied beverage company best known for its flagship soda.
Two Positive Attributes:
1. Elite Gross Margin Powers Best-In-Class Business Model
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Coca-Cola has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 61.1% gross margin over the last two years. That means for every $100 in revenue, only $38.87 went towards paying for raw materials, production of goods, transportation, and distribution. 
2. Operating Margin Reveals a Well-Run Organization
Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.
Coca-Cola has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 25.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Coca-Cola grew its sales at a sluggish 4.1% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer staples sector, but there are still things to like about Coca-Cola.
Final Judgment
Coca-Cola’s positive characteristics outweigh the negatives. With its shares lagging the market recently, the stock trades at 22.4× forward P/E (or $71.48 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
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