The recent performance of PepsiCo stock (NASDAQ:PEP) has left shareholders a bit disappointed. The company appears to be facing a slowdown in its growth while its industry rivals enjoy all-time highs. However, as Nikolaos Sismanis alluded to in a previous article, this slowdown is not as dramatic as investors might think and can even become a great opportunity for a historical discount on the stock.
Here are 3 reasons why you may want to consider PEP stock in your portfolio:
- Growth has slowed down, but the numbers are still impressive: After showcasing its Q1 results in which revenue grew by only 2.3%, lower than the inflation rate, some displeased murmurs sounded. However, the picture becomes much brighter when put in the proper context. This minor growth comes on top of continuing revenue growth for several years. In 2023, for example, revenue growth stood at 8.7%, while overall, in its 10-year period, CAGR stood at 3.3%. It’s not spectacular, but it’s solid nonetheless.
- Raising prices didn’t stop the company’s growth: PEP revenue has risen mainly through aggressive price elevations over the last few years, even at the cost of decreased volume sales. However, the price increase of its merchandise did not stop revenue growth; it’s the reverse. Instead, PEP has generated more growth than in prior years, which is admirable.
- The stock trades at a historical discount: In its recent guidance, PEP management has reiterated its stance for the rest of the year and forecasted an 8% earnings per share (EPS) growth. This takes us to the third and last reason- share valuation. Currently, the stock trades at a discounted valuation of 20.6, while historically, the stock valuation stood at the multiples of 23 and 25 times. Considering its remarkable reputation of 52 consecutive years of dividend growth, it is rare for PEP to be trading at a discount.
Final Word on PEP
PepsiCo has endured a slowdown in its growth of only 2.3%, which puts slight pressure on the stock, but this unspectacular growth doesn’t tell the whole story. PEP has been on a continual growth path for several years, increasing its size and enhancing its reputation as one of the most reliable stocks in the market. Its share valuation of 20.6 suggests investors’ positive outlook while trading at a rare discount. Tie this all together, and you will have a good opportunity to enter this beverage and snack’s ongoing party, even if the music temporarily slowed down to a small degree.
