[ad_1]
In the stock market, quality growth rarely comes at a discount. Absent a major market downturn, investors tend to prioritize these successful businesses over the index, which can result in inflated valuations and limited long-term returns. That’s especially true in rallies like the one that has featured this year. Still, you can still find deals by considering strong stocks that have fallen out of favor for questionable reasons.
pepsico (PEP 0.78%) is a perfect example. The beverage and snack giant is currently growing sales at a double-digit pace, but its stock price has fallen 13% over the past six months. Read on for good reasons to stock up on this unloved stock now.
1. Growth and market share
Despite the recent share price weakness, investors have done little to disappoint with PepsiCo’s recent growth trends. Organic sales rose 12% through most of 2023, the company said in mid-October. This is higher than Pepsi’s 14% jump in the same period last year.
Indeed, today’s growth is driven solely by price increases, which is not ideal. Volumes in the Beverages business were flat, while volumes in the Snacks segment were down 2%. All things being equal, Pepsi is aiming for balanced growth where both price and sales volume contribute to organic sales growth.
But Pepsi’s ability to offset cost inflation without sacrificing market share is a testament to its pricing power. Investors could take this as a sign that growth will accelerate in coming quarters as inflation slows.
2. Brilliant profits
Profitability is also trending in the right direction, with both gross margin and operating margin increasing this quarter.Pepsi isn’t even close to its major rivals coca cola (NYSE:KO), on this score it still generates a decent profit today. After adjusting for exchange rate fluctuations, profits rose 16% through his first three quarters of 2023.
While these price increases have provided a tailwind, Pepsi has also received support from cost-cutting and rising demand for non-traditional beverages such as energy drinks. This quarter was his sixth consecutive quarter of double-digit profit growth. “We are very pleased with our performance,” management said on a conference call with investors in October. These gains in a tough sales environment suggest that Pepsi has room to grow revenue at a faster pace through the next industry turnaround.
3. Cash return
Pepsi plans to provide $8 billion in cash to shareholders this year, the bulk of which will come from dividend payments. Its dividend has increased for over 50 consecutive years, making this consumer staples business a dividend king. Investors should consider the bonuses on top of the appreciation they would receive from owning the stock, although last year’s poor performance has pushed the yield to a respectable 3%. Pepsi is worth just 2.5 times sales, or less than half Coca-Cola’s premium.
Admittedly, owning Pepsi instead of Coke today doesn’t make much of a profit as a business. However, the company’s stock has achieved steady sales and profit growth, abundant cash flow, and increased dividends. Pepsi is becoming more diversified as its snack food business generates the majority of its revenue each year. Consider taking advantage of the recent share price drop and incorporating this high-performing business into your growth portfolio.
[ad_2]
Source link
