Coca-Cola (KO 1.43%) is known worldwide. It sells numerous ready-to-drink products and has a presence in 200 countries and territories. With a whopping 1.9 billion servings consumed daily, Coca-Cola might have the broadest reach of any company in the world.
The company has generated a total return, which includes dividends, of 25,770% in the past 50 years. This would've turned a $5,000 investment into over $1 million.
But investors rightfully care about the future. Could putting $5,000 into this beverage stock now make you a millionaire one day?
A Buffett favorite
Legendary capital allocator Warren Buffett is closely watched by many investors due to his impressive track record as CEO of Berkshire Hathaway. The conglomerate has long been a shareholder in Coca-Cola, today owning 9.3% of the company's outstanding stock.
That's a huge vote of confidence, and it's easy to understand. Coca-Cola's most important characteristic is its brand, giving it a great economic moat. The brand has incredible consumer mindshare thanks to the company's consistency, unrivaled distribution, and effective marketing tactics.
The brand helps drive pricing power. In the fiscal 2024 third quarter (ended Sept. 27, 2024), Coca-Cola unit volume dipped 1% year over year. But this was offset by 10% higher prices. That's nothing new, as consumers have historically proven their loyalty to the Coca-Cola brand.
Another reason to appreciate this business is its stability and durability. Coca-Cola's products are consumer staples, so the company's financials don't fluctuate much during changing macro conditions. And that can give shareholders peace of mind, especially in an economy that's constantly changing.
What's more, Coca-Cola doesn't face much disruption. Investors can count on the company still being around 50 years from now. It's impossible to say that about the vast majority of businesses.
And we can't ignore the company's impressive profits. In the past decade, Coca-Cola's operating margin has averaged a stellar 27%.
That profitability has benefited shareholders directly. Coca-Cola has raised its dividend, currently 3.19%, for 62 straight years, a tremendous feat that clearly shows management cares about its investors.
Show me the returns
Coca-Cola is a special business thanks to its brand, durability, and huge profits. Investors might wonder why they don't already own the company.
But consider that in the last decade, a long enough time to judge a stock's performance, Coca-Cola shares generated a total return of 97%. That's a disappointing showing given that the S&P 500 produced a total return of 258% during that same stretch.
I believe this underperformance will continue in the decades ahead. Sales won't increase at a rapid clip, as this is a very mature company that operates in a low-growth industry. According to Wall Street consensus analyst estimates, revenue will rise 4% in 2025 and 5% in 2026.
That's nothing to write home about, even if the future is better than the past. Revenue in fiscal 2023 was lower than in fiscal 2013, so there's no reason to believe Coca-Cola will soon experience fast growth.
Investors are being asked to pay a price-to-earnings ratio of 25.1 to buy shares of Coca-Cola right now. That represents a slight premium to the overall market. But it's in line with the stock's trailing-10-year average valuation. Shares look fully valued today based on historical data.
Investing $5,000 in Coca-Cola stock might make you a millionaire, but it could take another 50 years. Better to buy an exchange-traded fund that tracks the S&P 500.
