Where Will Coca-Cola Stock Be in 5 Years?

The economy is complicated. Because of that, determining where a company will be in five years can be tricky. Artificial intelligence, for instance, is among Wall Street's hottest topics, but which AI-related companies will emerge as the real winners five years from now is anyone's guess.

In other cases, it's not nearly that complicated. Coca-Cola (KO) will probably be selling a sizable chunk of the world's beverages five years from now, just like it did 10, 20, 50, and 100 years ago.

But what does that mean for the stock? There's a little more nuance here, so let me break it down for you. Here is Coca-Cola's five-year outlook.

Expect consistency as always from Coca-Cola

Coca-Cola is about as simple a business as you'll find. It owns, produces, and/or franchises hundreds of beverage brands, including sodas, water, juices, teas, coffees, and flavored alcoholic drinks. A combination of brand expansion, population growth, and price increases has marched revenue higher for more than a century.

You can see below that the company has been remarkably consistent, aside from its stint last decade of buying and then shedding its bottling operations. That consistency has shown up in its dividend, which management has increased annually for 60 consecutive years, one of the longest streaks of any public company.

KO revenue (TTM) data by YCharts. TTM = trailing 12 months.

Analysts expect roughly 7% annual earnings growth over the next three to five years, which gives investors a solid foundation for long-term returns. Assuming the stock's valuation doesn't change, they can enjoy that growth plus a dividend that yields 2.9% today, putting annual returns somewhere near 10% on average.

About that valuation...

Holding blue chip stocks like Coca-Cola for many years can be a lucrative investment strategy, but valuation does matter, especially if you're looking at a five-year time frame. Today, the stock trades at a forward price-to-earnings (P/E) ratio of 24, a hefty premium to the S&P 500 P/E of 18 despite a growth outlook on par with the broader market's historical growth rate.

In other words, investors are paying a premium for Coca-Cola's reliability and steady growth. It makes sense in a stock market that seems pretty rattled, given a rough 2022 and banking worries in early 2023.

KO PE ratio (forward) data by YCharts.

The potential issues arise for shareholders down the road if market sentiment improves and investors want more risk and upside versus ol' reliable Coca-Cola. Trading the stock to a lower P/E could hurt investor returns because the valuation compression will cancel out much of the company's growth for a few years.

Putting numbers to thoughts

Here is what that could look like:

Assuming Coca-Cola grows 2022 earnings per share (EPS) of $2.48 by 7% annually for the next five years, it would earn $3.48 in 2027. Now, you can apply a P/E on that figure to generate hypothetical share prices:

Chart source: Data by author.

These are potential price gains over the next five years. They don't include dividends, but you can get an idea of the range of results one can expect from a given valuation. If Coca-Cola stock compresses to a P/E of 20 over the next five years, investors will have a largely stagnant investment with some dividends along the way. Returns get better as valuations go higher.

The question for investors is whether you would accept the results if the stock's valuation declined. If not, waiting for a better valuation before buying the stock would make sense. Nothing is certain in investing, but a mature and steady business like Coca-Cola allows investors to make decisions based on the risk-reward balance that makes sense for them.