Is Coca-Cola's Stock Overvalued Or Undervalued?

Coca-Cola Co KO shares have lagged the S&P 500 in 2021, generating a year-to-date total return of just 4.6%.

Coca-Cola has struggled to keep up with the overall market for more than a decade now. At this point, investors may be wondering if there’s any value left in Coca-Cola shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is at about 28.7, nearly double its long-term average of 15.9.

Coca-Cola’s PE is 30, slightly above the S&P 500 average as a whole. Coca-Cola's PE ratio is also up 17% over the past five years, suggesting the stock is priced at the high end of its historical valuation range.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. Coca-Cola’s forward earnings multiple of 23.1 is also more reasonable, but it’s still slightly higher than the S&P 500 as a whole, making Coca-Cola's stock look overvalued.

Coca-Cola’s forward PE ratio is also higher than its consumer staples sector peers, which are averaging a 20.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 0.9; Coca-Cola’s PEG is 3.02, suggesting Coca-Cola is significantly overvalued after accounting for its growth.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.12, well above its long-term average of 1.62. Coca-Cola’s PS ratio is 6.63, more than double the S&P 500 average as a whole.

Finally, Wall Street analysts do see some value in Coca-Cola stock over the next 12 months. The average analyst price target among the 22 analysts covering Coca-Cola is $62.55, suggesting 11.6% upside from current levels.

The Verdict: At its current price, Coca-Cola stock appears to be slightly overvalued based on a sampling of common fundamental valuation metrics.