Is Coca-Cola Stock a Buy at Its 52-Week High? | The Motley Fool (2024)

Shares of Coca-Cola (KO 0.94%) have popped, trading 9% higher in 2024 and currently at a 52-week high. The beverages giant appears to have moved past a volatile last couple of years defined by changing consumer spending trends and the impact of inflationary cost pressures. A new round of sales growth and earnings momentum highlights an improved outlook.

Even following the big rally in recent months, there are several reasons to remain bullish on Coca-Cola. Let's explore why the stock could be a good addition to your portfolio.

A strong start to 2024

The appeal of Coca-Cola as an investment starts with its globally recognized iconic brands. It's hard to find someone who doesn't have a favorite across the extensive beverage lineup covering sodas, juices, water, sports drinks, milk, coffee, and tea brands sold in more than 200 countries.

Even as consumer tastes change, the latest data suggests Coca-Cola remains as relevant as ever, which is a testament to the company's constant innovation and strategic execution. For the first quarter (covering the period ending March 31), Coca-Cola reported net revenue of $11.3 billion, an increase of 11% year over year on an organic basis.

While global unit case volume grew by just 1%, the story has been the company's ability to push pricing with the price mixup 13% as a global average. Some of that move is in response to high inflation and currency devaluations in certain markets, but the theme also captures the company's positioning toward premium categories through its franchised bottling partners.

The result is evident as the comparable operating margin reached 32.4% this quarter versus 31.8% in Q1 2023. This metric has trended higher in each first quarter over the past four years as a key driver of the rising profitability. First-quarter comparable earnings per share (EPS) of $0.77 climbed 7% from $0.68 in the period last year.

Management expects volume, top-line, and earnings growth to continue for the rest of the year. Coca-Cola is guiding for 2024 organic revenue growth between 8% and 9%, a target that was revised higher compared to the 6%-to-7% range offered earlier in the year. The company also sees full-year comparable EPS growth of 4% to 5%, versus $2.69 in 2023.

Data source: Coca-Cola. GAAP = generally accepted accounting principles.

Is it the right time to buy Coca-Cola?

There's a lot to like about Coca-Cola between its strong fundamentals and positive outlook.

I can point to the strong balance sheet where the latest net debt leverage ratio of 1.6 times earnings before interest, taxes, depreciation, and amortization (EBITDA) is below the company's announced target range of 2 to 2.5 times. That level of financial flexibility is a good setup for this Dividend King, which announced its 62nd consecutive annual dividend increase earlier this year. There's a good chance for that streak to continue for many years, reaffirming Coca-Cola as a dividend growth leader. The current $0.485-per-share payout yields 3% on a forward basis, which is simply the cherry on top of the appreciating stock price.

Even with shares making a new high, I believe Coca-Cola still offers good value. The combination of steady growth, expanding profitability margins, positive free cash flow, and declining balance sheet debt can support a higher valuation. Notably, the stock is trading at a forward price-to-earnings (P/E) ratio of 23 against management's 2024 EPS guidance. This is below the five-year average for the valuation multiple closer to 27 as an indication the stock may be undervalued.

KO PE Ratio (Forward) data by YCharts

Final thoughts

I think Coca-Cola is a great buy right now as a long-term holding in the context of a diversified portfolio. It likely won't be a straight line higher, but I expect Coca-Cola to continue generating positive returns.