Why Coca-Cola Stock Could Struggle in 2024

Coca-Cola (KO 0.29%) and other top consumer food brands have been able to perform well amid inflation as their pricing power has allowed them to simply raise prices and continue to generate revenue growth. But after multiple price hikes, that can start to have a significant effect on consumers.

Although the business is still growing, Coca-Cola could be facing tougher times ahead, and that could be bad news for the stock. Let's evaluate.

Volumes have been slowing down

In Coca-Cola's most recent quarterly earnings report, for the period ended Sept. 29, the company posted net revenue growth of 8%, with its top line rising to $12 billion. Organically, and without factoring in the impact of foreign exchange and acquisitions or divestitures, revenue was up 11%. Price increases and sales mix were responsible for the vast majority (9 percentage points) of that growth. Sales volume, however, which Coca-Cola refers to as concentrate sales, rose by only 2%.

Here's how that performance compares to the same quarter in the previous couple of years:

Data source: Company filings.

Price increases are accounting for much more of the company's organic growth than in the past. And that can be dangerous, particularly as consumers continue to struggle due to inflation and have to make choices as to which products to buy, and which ones to cut back on.

Price increases aren't a sustainable strategy

Over the past few years, Coca-Cola's growth rate has been fairly strong, oftentimes at more than 10%. But things have been cooling off a bit. And if price increases negatively impact volumes, investors could see Coca-Cola's growth rate slow even further in future quarters.

KO Revenue (Quarterly YoY Growth) data by YCharts

While the consumer has been able to manage rising prices thus far, the risk is that prices have already increased significantly, and expecting people to just pay more each year could have a breaking point. The average price of a 2 liter soft drink (all brands, not just Coca-Cola) in the U.S. was $2.36 in September. That's a 33% increase from September 2021 when the average was $1.78. 

The cumulative effect of all these price increases is significant. And the risk is that if the economy falls into a recession next year and consumers are under even more financial duress, that could impact Coca-Cola's sales. For now, the company has proven to be relatively resilient but investors shouldn't expect that to always be the case as some consumers simply may not have reached their breaking points.

And if job losses mount and economic conditions worsen, that could quickly change for the worse.

Should you buy Coca-Cola stock?

This year, shares of Coca-Cola have fallen 12% as many investors appear to be concerned about the company's continued growth. At 23 times its trailing earnings, the stock still trades at a bit of a premium to the average S&P 500 stock, which sports a price-to-earnings multiple of 19 -- suggesting that Coca-Cola shares aren't terribly cheap despite their decline this year.

But for long-term investors, this can still be a worthwhile investment to hang on to now. Coca-Cola has been increasing its dividend for decades and today it yields 3.3%, which is far higher than the S&P 500 average of 1.7%. And while the company's growth rate could stumble next year, in the long run this still makes for a fairly versatile and resilient business to invest in. Assuming that you're willing to buy and hold the stock for multiple years, Coca-Cola can still be a good investment to hang on to -- but investors should brace for possible weakness next year.