Since December 2024, Keurig Dr Pepper has been in a holding pattern, posting a small return of 2.4% while floating around $33.19.
Is there a buying opportunity in Keurig Dr Pepper, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Keurig Dr Pepper Not Exciting?
We don't have much confidence in Keurig Dr Pepper. Here are three reasons why KDP doesn't excite us and a stock we'd rather own.
1. 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. Regrettably, Keurig Dr Pepper’s sales grew at a mediocre 6.5% compounded annual growth rate over the last three years. This was below our standard for the consumer staples sector. 
2. Shrinking Operating Margin
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.
Looking at the trend in its profitability, Keurig Dr Pepper’s operating margin decreased by 5.7 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 16.9%.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Keurig Dr Pepper historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.7%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.
Final Judgment
Keurig Dr Pepper’s business quality ultimately falls short of our standards. That said, the stock currently trades at 16.1× forward P/E (or $33.19 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
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