Investors in Coca-Cola (NYSE:KO) have seen notable returns of 48% over the past five years

The main point of investing for the long term is to make money. Furthermore, you’d generally like to see the share price rise faster than the market. But The Coca-Cola Company (NYSE:KO) has fallen short of that second goal, with a share price rise of 27% over five years, which is below the market return. Unfortunately the share price is down 5.1% in the last year.

Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Coca-Cola

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Coca-Cola achieved compound earnings per share (EPS) growth of 10% per year. This EPS growth is higher than the 5% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growthearnings-per-share-growth

earnings-per-share-growth

We know that Coca-Cola has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Coca-Cola’s TSR for the last 5 years was 48%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in Coca-Cola had a tough year, with a total loss of 2.0% (including dividends), against a market gain of about 28%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Coca-Cola is showing 2 warning signs in our investment analysis , you should know about…

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.


Source link

Check Also

BHP Group Limited (ASX:BHP) is a favorite amongst institutional investors who own 53%

Key Insights Significantly high institutional ownership implies BHP Group’s stock price is sensitive to their …

Leave a Reply

Your email address will not be published. Required fields are marked *