One of the longest-standing positions in Warren Buffett's Berkshire Hathaway portfolio is Coca-Cola (NYSE: KO) . As of the time of this article, shares of the beverage stock are hovering at all-time highs.
While this might make you think the train has left the station, I'd argue that now is just the right time to pounce on Coca-Cola stock.
Let's explore the company's performance and what could be driving investor enthusiasm. Moreover, after a thorough analysis of the full picture, investors may come to see that now looks like a lucrative opportunity to scoop up shares.
Assessing Coca-Cola's financial health
Assessing the financial health of Coca-Cola can be a challenging exercise. On the one hand, revenue trends for consumer discretionary businesses tend to be volatile. Considering the macroeconomy has weathered a tough storm featuring lingering inflation and high interest rates over the last couple of years, it's not surprising to see Coca-Cola's sales trends experience some dramatic peaks and valleys. Frequently, companies struggle to maintain profit levels when revenue is experiencing inconsistencies.
But as I often encourage investors to do, taking a look further down the income statement can help you gain insights about a business beyond its revenue generation. Although Coca-Cola's current revenue levels are on par with results from 10 years ago, the company has made massive strides in margin expansion.
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KO Revenue (Quarterly) data by YCharts
As the charts below illustrate, Coca-Cola's gross margin shows some encouraging signs of improvement compared to levels even just a year ago. Moreover, the company's operating margins are significantly higher today than a decade ago .
![https://img.particlenews.com/image.php?url=0frOQL_0vFGZNmh00](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=0frOQL_0vFGZNmh00)
KO Gross Profit Margin (Quarterly) data by YCharts
Earlier this year Coca-Cola announced that it was investing $1.1 billion into generative AI applications and teaming up with Microsoft . The rationale behind the deal is to leverage Microsoft's generative AI platform to help Coca-Cola identify new opportunities in marketing, supply chain logistics, bottling, manufacturing, and more. By leveraging technology, Coca-Cola has a real opportunity to identify inefficiencies across its ecosystem and form new strategies to improve its operation at a global scale.
Coca-Cola looks well-positioned to continue improving its profitability metrics, even if sales remain somewhat unpredictable. As a result, I would not be surprised to see the company's earnings power improve which could very well lead to increased enthusiasm for the stock.
Why now looks like a great time to buy Coca-Cola stock
The chart below shows Coca-Cola's price-to-earnings (P/E) ratio over the last year. Given the steep slope of the P/E line, it's obvious that Coca-Cola has experienced significant valuation expansion in short order.
However, there is more than meets the eye when analyzing Coca-Cola's valuation.
![https://img.particlenews.com/image.php?url=1wp0lE_0vFGZNmh00](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=1wp0lE_0vFGZNmh00)
KO PE Ratio data by YCharts
Over the last two years Coca-Cola stock has generated a total return of 16.7% This is dramatically below the S&P 500 's total return of 40.9%. This is important to call out because it helps illustrate that even though shares of Coca-Cola just notched an all-time high and the company's P/E multiple makes the stock appear pricey, its overall performance during the last couple of years has lagged the broader market.
To me, this signals that the stock is just now finding some new life and could be a great buy as Coca-Cola enters a new phase of operating efficiencies.
![https://img.particlenews.com/image.php?url=1mGGC9_0vFGZNmh00](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=1mGGC9_0vFGZNmh00)
Image Source: Getty Images
Sit back and enjoy the rewards
Keep in mind that one of the reasons Buffett has held onto Coca-Cola stock for decades is because the company is an extremely reliable dividend payer. In fact, Coca-Cola is a Dividend King as it has raised its dividend payment for at least 50 consecutive years.
I don't see this going away. Furthermore, should Coca-Cola continue to demonstrate strong margin expansion and strengthen its profitability profile, the company will theoretically have excess piles of cash that it can use for potential buybacks and of course, more dividend raises.
Coca-Cola's improving operating metrics stand to benefit significantly from the investments management is making in a cognizant effort to achieve even greater efficiencies. Despite its recent surge, I see now as a great opportunity to buy Coca-Cola stock hand over fist and prepare to hold for the long run.
Adam Spatacco has positions in Microsoft. The Motley Fool has positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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