In this report, we’ll be looking at Coca Cola Company. The Coca Cola stock price has rebounded on the basis of a good business model, a good profit margin, increasing dividends and a great PE, even Buffett seems to like owing this stock. Shouldn’t you?
The Coca-Cola Company (NYSE: KO)
Coca-Cola is a product that is consumed in over 200 countries and territories worldwide. Lesser known is the fact that most distribution of the products is carried out by franchisees, as Coca-Cola only make the original syrup which is then shipped to bottlers and canners worldwide. In fact, one of the biggest bottlers trades under the symbol ‘Coke’ and could be easily confused with the original company.
The Early Fizz
Dr. John Styth Pemberton formulated Coca-Cola in 1886 as a medicinal drink, realizing sales of $50 in that year at five cents per glass. Today Coca-Cola’s products are sold in 200 countries and people around the globe consume more than one billion drinks per day!
And yes, Coca-Cola did contain a small amount of cocaine because Dr. Pemberton’s creation depended on the coca leaf for much of its medicinal qualities. By 1929 technology had advanced enough for the company to eliminate the 1/400th of a grain of cocaine in each bottle and none of the millions of people who were loyal to the drink noticed a bit of difference in the taste or refreshing qualities of Coca-Cola.
Coca-Cola continued to thrive in the 19th century and well into the 20th. Striving to make it distinctive and memorable, the company settled on a contour bottle that would make Coke instantly recognizable even if a person were to touch the bottle in total darkness. Even when broken, people would recognize the pieces! Of course, when glass bottles were phased out Coke made an equally distinctive aluminum can.
The Magic: Shaken, not stirred!
Coca-Cola doesn’t produce the cans and bottles of Coke that we all know and love. The company actually manufactures the syrup the drink is made from and sells it to bottlers throughout the world who mix, bottle and distribute Coca-Cola. This means that Coke’s overhead is fairly low, raising its profit margin and lowering the risk. Coca-Cola is sold to restaurants, food service distributors, grocery stores, concessions, sports stadiums and nearly every establishment that serves food and drink or entertains in some way.
By 1999, the company decided to diversify and bought Cadbury Schweppes, maker of Dr. Pepper and other popular soft drinks. The two companies thrived from their merging and Coca-Cola decided to try its hand at other drink products. By 2006, it had capitalized on the sports drink craze and could boast of over 400 brands worldwide. It also manufactures carbonated waters, still waters, and enhanced water drinks.
Added to this you can find juices, juice drinks, teas and even coffee drinks. While you may recognize the carbonated beverages marques of Coca-Cola, Diet Coke, Fanta, and Sprite, you may not realize that Dasani (waters), Nestea (iced tea drinks), and even Fruitopia (fruit drinks) are also their own brands.
While it’s the top soda in many markets world-wide, China and the Far East pose challenges to the soda business. Top drinks in many of these countries are typically green teas, juices, and fruit drinks. Even in Japan, its canned coffee is its top selling product. But Coca Cola hasn’t let that stop it developing an international business by developing and/or buying up other companies or products.
Its Winning Formula
Coca-Cola is the world’s large beverage company and markets the top five nonalcoholic carbonated beverage brands in the world. Although the company had a significant drop in profits in the fourth quarter of 2007, it has recovered nicely using sound business sense and creative advertising and continues to perform well.
The 2008 Olympics gave sales a big boost, too, and Coke’s sponsorship of other sporting and charity events keeps it visible and in demand. Coca-Cola rarely suffers losses because they’ve taken steps to insure that their popularity crosses generations as well as cultures. Coke is an affordable and popular product whose returns are consistently steady and whose stock is a reliable investment.
This company clearly survived the downturn, expanded in Asia (which drinks largely tea), and created new brands. So I wouldn’t bet on the Coca Cola stock price falling much, that’s for sure. But at what point does it become a ‘buy’ for you? I do like those increasing dividends, which grew at over 250% over 10 years. That’s a nice return, there!
The Coca Cola Stock Price
The stock for this company has largely languished since it hit a high of $85 in 1998. Though in the early part of this decade, it has risen to the 60’s on several occasions. If you had bought at a high in 1998, you’d likely still be sitting on a loss of nearly 40%.
Fortunately, this poor performance in Coca Cola stock price would have been compensated by a large jump of 290% in the annual dividend from just 60 cents a share in 1998 to a $1.76 in 2010.
The Coca Cola stock price is not cheap by any means, its PE ratio stands at over 18, and the company carries nearly $12 billion dollars in debt. However, this is more than compensated by a robust profit margin of 23% and plenty of cash in the bank.
While the stock rocketed from just $1 and change in the 70’s to its current position, it’s not likely to do that again! After all, when you can grow to over 200 territories, could you really grow your business that much again? So what’s your take on the Coca Cola stock price, business prospects, or markets in 2010~11?