Is It Too Late to Buy Coca-Cola Stock Now?

Beverage giant Coca-Cola (NYSE: KO) is on a roll. The stock is setting fresh all-time highs on a daily basis -- thriving with a 15% gain over the last two months while the broader market moved sideways.

But you know what they say about past performance and future results. The view in the rearview mirror isn't always a good guide for what's coming up ahead.

So Coke's recent results look great, but what's next? Let's see whether there's any fizz left in Coca-Cola's market-beating recipe.

Coca-Cola's business empire at a glance

Coca-Cola's business strategy is pretty simple, but it was decades in the making. After building a global distribution network and unbeatable brand recognition over the years, the company takes advantage of these incomparable assets. Coca-Cola is always tweaking its strategy with new flavors, fresh marketing ideas, and a worldwide tapestry of pricing policies to fit each local market.

The company is so simple, a ham sandwich could run it successfully. What else do you expect from a company where Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) owns 9.3% of the stock? The investing genius famously prefers very simple business plans , and Coca-Cola has been one of Berkshire's largest holdings since 1988.

Sparkling revenue, fizzy profit

Coke's simple business generates very robust financial results. The company's revenue showed a compound annual growth rate (CAGR) of 6% over the last five years. Free cash flow saw a 7% CAGR over the same period, while bottom-line earnings reached a 10% average growth rate.

In other words, Coca-Cola's sales are increasing at an inflation-beating pace, and the business is also growing more profitable over time. Coca-Cola sports some of the richest profit margins in the industry, far ahead of archrivals PepsiCo (NASDAQ: PEP) and Keurig Dr Pepper (NASDAQ: KDP) .

And the company isn't shy about sharing its cash profits with stock owners. Coke collected $46.5 billion of revenue over the last four quarters, pocketing $9.1 billion of free cash flow along the way. It paid out dividends worth $8 billion over the same time span. With 400 million Coke share in its coffers, Berkshire Hathaway pocketed $766 million of that cash -- not too shabby for an original investment of $1.3 billion. That's an effective dividend yield of 59%, earned by holding the stock for decades.

Is Coca-Cola's high valuation justified?

If Coca-Cola has a weak spot, it's the lofty valuation of its stock. Shares are changing hands at 30 times trailing earnings and 6.8 times sales. By comparison, Pepsi's stock is valued at 25 times earnings or 2.6 times sales, while Keurig Dr Pepper's stubs cost 24 times earnings and 3.3 times sales.

So you're looking at a premium-quality company whose stock trades at a premium valuation. The business offers dependable but modest growth with sector-leading profit margins. This is a mature business, firmly seated at the corner of Value Street and Robustness Boulevard. But the high valuation ratios would be more appropriate for a smaller and hungrier growth stock. Coke's valuation is indeed quite comparable to the faster-growing energy drink experts Monster Beverage (NASDAQ: MNST) or Celsius Holdings (NASDAQ: CELH) .

Data from Finviz.com on 9/3/2024. P/E = price to earnings. P/S = price to sales.

Timing your Coca-Cola investment

So is it too late to buy Coca-Cola stock today?

The short answer is that it depends on your investing strategy. If you're looking for the next hot growth stock or market-crushing value play, Coke won't be your best bet. The company's helpful qualities are already priced into the stock, and even Warren Buffett probably wouldn't start a Coca-Cola position at these prices. Remember, he insists on buying great companies at a reasonable price . Coca-Cola only checks one of those two boxes today.

On the other hand, you should consider adding Coca-Cola to your portfolio if you're into dollar-cost averaging and other automated investment strategies. The company will be around for decades, always finding new ways to satisfy ever-changing consumer tastes. It's not quite as safe as putting regular investments into a broad-market index fund , come rain or shine, but Coca-Cola is a reasonable selection for a hand-picked basket of ultra-reliable stocks.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Celsius, and Monster Beverage. The Motley Fool has a disclosure policy .