Coca-Cola shares are down 11% YTD. Should I invest?

Coca-Cola shares are down 11% YTD. Should I invest?
Written by:
Stanko Iliev
27th September, 10:08
  • Coca-Cola the is cutting jobs and it will create new operating units focused on regional and local execution
  • The business of the company is still struggling to recover to pre-COVID levels
  • If the price falls below $40 it would be a strong “sell” signal

Coca-Cola shares (NYSE: KO) has weakened from $60 below $37 in less than eight months and the current price stands around $48. The business of the company is impacted by the coronavirus Covid-19 pandemic and the next several months will be competitive for the beverage industry.

Fundamental analysis: The business of the company is impacted by the coronavirus Covid-19 pandemic

The Coca-Cola Company is an American multinational beverage corporation headquartered in Atlanta. The main business of this company is the manufacturing, retailing and marketing of nonalcoholic beverage concentrates and syrups.

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The company is well known for its famous drink Coca-Cola and for the fact that it has increased dividends each year for 57 years. The business of the company is impacted by the coronavirus Covid-19 pandemic environment and business is still struggling to recover to pre-Covid levels.

Coca-Cola reported that organic revenue fell 26% in Q2 and the company lost value share in total non-alcoholic ready-to-drink beverages. Coca-Cola CEO James Quincey said that the company has not seen demand return to pre-pandemic levels, even in markets where the coronavirus is mostly under control.

According to the latest news, the company is cutting jobs and it will create new operating units focused on regional and local execution. This is a part of the overall reorganization and Coca-Cola will offer employees an option to take a voluntary separation package.

The company is still working very hard in terms of boosting revenue and it plans to bring the hard seltzer product to market under the Topo Chico brand. The company increased its revenue in 2019 to $37.26B from $34.300B in 2018 but some rumors say that the company could face problems with cash flow in the future.

With a $209B market capitalization, this stock is overvalued in my opinion and maybe it is not the best moment to invest in Coca-Cola shares. It is also important to mention that analysts see the valuation of Coca-Cola at bubble levels and they also think that this company is overvalued.

Despite this, Coca- Cola could be a very good opportunity for short-term traders who are trading with “stop-loss” and “take profit” orders.

Technical analysis: the price could weaken even more in the upcoming weeks

Data source: tradingview.com

On this chart, I marked important resistance and support levels. The important support levels are $44 and $40, $50 and $60 represent the resistance levels. If the price jumps above $50 it would be a signal to buy Coca-Cola shares and we have the open way to $55.

Rising above $60 supports the continuation of the bullish trend and the next price target could be located around $65. On the other side, if the price falls below $40 it would be a strong “sell” signal and we have the open way to $36.

Summary

There are some obvious risks when it comes to buying Coca-Cola shares and there are several negative facts that are connected with this company. Coca-Cola reported that organic revenue fell 26% in Q2 and the company lost value share in total non-alcoholic ready-to-drink beverages. The company is cutting jobs and it could face problems with cash flow in the future. If we compare total stockholders’ equity of $19.18B and the market capitalization of $209B, we can notice that this stock is overvalued and maybe it is not the best moment to invest in Coca-Cola shares.

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