Is May a good month for buying Coca-Cola shares?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the outdoors, enjoys… read more.
on May 16, 2021
  • Coca-Cola shares are trading above support $50
  • The company's business has proven improvements throughout the first quarter of 2021
  • Coca-Cola shares are not undervalued, but there is no risk of a positive trend reversal for now

The U.S. reported that consumer prices rose sharply in April and drove the rate of inflation to the highest level in nearly 13 years; still, Wall Street’s three main indexes ended sharply higher on Friday and trimmed earlier losses. Coca-Cola shares are trading above support $50, and according to technical analysis, there is no risk of the positive trend reversal for now.

Fundamental analysis: Coca-Cola raised its outlook for the fiscal 2021 year

Coca-Cola shares have weakened from their recent highs above $55, and the current price stands around $54.7. The U.S. reported that inflation rose to the highest level in nearly 13 years, and investors have started to behave nervously amid concerns about the rising inflation.

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The company’s business has proven improvements throughout the first quarter of 2021, and the company reported better than expected results last month. Total revenue has increased by 4.7% Y/Y to $9 billion, while the GAAP EPS was $0.52 for the first fiscal quarter (beats by $0.02).

Total revenue has increased above expectations, and the company raised its outlook for the fiscal 2021 year. It is important to say that organic revenues grew by 6%, primarily driven by growth in concentrate sales.

“In the first quarter, we positioned our business to recovery while executing against our emerging stronger agenda, equipping our system to win. We’re optimistic about the future and bullish about our ability to continue to deliver on the objectives we laid out at the height of the crisis,” said James Quincey, Chairman, and Chief Executive Officer.

Through the first quarter, volume trends steadily improved each month, driven by the recovery in markets from the pandemic, but the negative news is that Coca-Cola lost share in total nonalcoholic ready-to-drink (NARTD) beverages. The consensus Wall Street rating on Coca-Cola remains bullish, but probably it is not the best moment to invest in shares of this company.

Coca-Cola trades at more than twenty times 2020 EBITDA, the book value per share is less than $5, and the current dividend yield is around 3%. If we compare the total stockholders’ equity of $22.33 billion and the market capitalization of $235.98 billion, we can notice that this stock is not undervalued, and the current risk/reward ratio is not good enough for “value” investors.

Technical analysis: Coca-Cola shares continue to trade in a bull market

Data source: tradingview.com

On this chart, I marked important resistance and support levels. The important support levels are $50 and $45, $57.5 and $60 represent the resistance levels. If the price jumps above $57.5, it would be a signal to buy Coca-Cola shares (NYSE: KO), and we have the open way to $60.

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 $50, it would be a “sell” signal, and we have the open way to $45.

Summary

Coca-Cola shares are trading above support $50, and according to technical analysis, there is no risk of the positive trend reversal for now. The company’s business has proven improvements throughout the first quarter of 2021, but shares of Coca-Cola are not undervalued, and the current risk/reward ratio is not good enough for “value” investors.

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