Coke v Pepsi – an age old debate, but which is the better investment opportunity?
By Dale Gillham, Chief Investment Analyst.
Coke v Pepsi – which is better? It’s an age old debate. Surveys have been conducted and depending on where you look, the results are often mixed. ‘They’ will be talking about flavour of course, but which company is more worthy as an investment opportunity? Both are titans in their own right, with a similar stable of products – of course, the knee-jerk reaction may be to just say ‘Coca-Cola’.
Sure. It’s easy to just say ‘Coke’ because of its longevity and stellar brand equity. One thinks ‘Coke v Pepsi’ in an open market and one assumes that Pepsi doesn’t even compare – and you know what? Once-upon-a-time, that would have been an astute observation.
However, you’ll be interested to know, the call is now much harder to make. The decision on which company would be better in terms of investment, is less clear due to a few key changes.
For example, Pepsi has been beating Coke in terms of sales since 2004;
Pepsi has been outselling Coke for over 10 years with its namesake product and yet, despite Pepsico’s stronger sales, Coca-Cola as a company are still the biggest kid on the block;
Yes, Coca-Cola are still on top. And considering how many brands are in the Coca-Cola stable, it isn’t hard to see why.
But is net income all one should take into account when choosing between two similar companies? Not at all. For example, Coca-Cola is actively increasing their dividends year-on-year, more so than Pepsi – and if you’re in it for the long haul as a dividend investor, this should be worth more to you and factor heavily in your decision to purchase stock.
On the other hand, Pepsi are spending less (half of Coke’s spend) on advertising whilst enjoying stronger sales of their flagship product. This tells us that Coca-Cola is trying twice as hard to move their product and yet still Pepsi comes out on top. This suggests they are making poor or less effective marketing choices, something that should factor into your choice in investment – you aren’t just investing in trends, you’re investing in a company comprising of people, always remember this.
With all of this considered, it’s still a tight race. A good trader knows that when considering the purchase of stock, thorough research will dramatically improve your chances of making money. This is simply because it is not only what you buy it is also when you buy that is important.
For example, if you had bought and held the two companies over a ten-year period to 31st December 2016, your return would have been approximately 67% for Pepsi and 161% for Coke; whereas the returns over five years were approximately 56% for Pepsi and 202% for Coke.
As you can see, your return with Pepsi is not as high as Coke over both the 5 and 10 years period. However, that being said, had you timed your entry into these shares, you can easily see that your money would have been working for you more effectively had you chosen Coca-Cola as you would have made more in 5 years than you would have if you held it for 10 years.
So which is the better choice today? In the short-term, you may find more success with Pepsi as their sales are increasing whilst Coca-Cola’s have declined.
That being said, Coca-Cola boasts more brands and unparalleled marketplace muscle, as well as offering more frequently increased dividend payouts, and has a history of better share price performance as we showed.
Whichever you decide, ensure you look at your intended timeline of ROI whether that be the short, medium or long term, as both companies move in different ways at different times- and so too do their respective stock prices.
To find out more about the share market, visit www.wealthwithin.com.au