Coca-Cola (KO 0.29%) stock is still in growth mode, even compared to big demand spikes in 2022. The beverage giant is setting new earnings records, too, with help from rising prices and successful product launches in niches like still waters and energy drinks.
These wins have helped push shares back near all-time highs, setting Coke's stock apart from peers like PepsiCo (PEP -0.19%). But growth-stock investors might still find a lot to like about this company today. Let's look at a few standout reasons why Coke stock is an attractive buy right now.
Winners keep winning
Through its dozens of drink brands, Coke is responsible for roughly 2.2 billion beverage sales each day, or about 3% of all drinks consumed around the world. That level of dominance is rare to find in any part of the stock market and translates into excellent returns for shareholders.
This past quarter, Coke reported a blistering 12% boost in organic sales volume. And while PepsiCo grew its beverage business at roughly the same pace, Coke's profit margins are more than double Pepsi's. "Our system alignment is stronger than ever," CEO James Quincey said in a late April press release .
Standout brands
Through early 2023, Coke is seeing strong growth from its core brands like Coca-Cola, Sprite, and Fanta. But newer franchises are performing even better. These include coffee, still waters, and energy drinks, niches that frequently deliver higher profit margins.
KO Operating Margin (TTM) data by YCharts.
Coke's reported earnings aren't looking strong right now, but that's only due to currency-exchange rate shifts. After accounting for these temporary swings, operating profit was up 15% in Q1. That would be an impressive level of annual growth for most businesses, but it's a huge success for a company that books over $10 billion of operating profit per year.
Outlook and price
In April, after beating management's Q1 goals, Coke affirmed its 2023 sales outlook that calls for growth of between 7% and 8% on top of last year's 16% spike. Earnings should expand at a slightly faster pace after accounting for exchange-rate shifts.
Yes, investors have to pay a premium for that level of consistent growth and financial fortitude. Coke shares are trading for over six times annual sales, compared to a price-to-sales (P/S) ratio of 3 for PepsiCo and of 3.7 for packaged-foods specialist McCormick.
You get lots of value for that premium, though. Coke delivers much higher profitability, gushing cash flow, and one of the world's most geographically diversified selling footprints. These factors should serve shareholders well, even if a recession develops over the next several quarters.
Coke has thrived through many such pullbacks in the past and has raised its dividend through each of these downturns. Income investors have no reason to fear an end to that track record in 2023, which will likely bring Coca-Cola's 61st consecutive annual dividend increase.
Given the bright outlook on earnings, sales, and direct shareholder returns, the stock looks like an ideal candidate to have in your portfolio. Don't let Coke's elevated valuation scare you away from its excellent growth-stock characteristics.
