In this article I will analyze Coca-Cola Co. stock, known as (KO), based in its earning per Share (EPS) and its Price/Earning (P/E) ratio.
First, we need to see how was KO’s EPS doing in the last six years. By browsing KO EPS for the last years, I found that its EPS rise from 1.04$ in 2017 until it reached 2.28$ in 2022 with drop to 0.67 $ in 2018 which as shown below:
When investigating the drop in its EPS in 2018, I found that the reason behind this was a drop in sales at that year, but since the company get back to its high earning immediately the year after it and keep this track for four years in sequence I am going to consider year 2018 earning as an anomaly and discard it.
The growth rate for KO EPS is 16.9% which is a nice figure for a company has big share in the market of soft-drinks.
Now that we have the growth rate of the KO’s EPS in the last five years, we are going to use this growth rate to estimated what will KO’s EPS be in 2027 ,which is five years from now by applying the following formula:
FV=PV(1+i)n
- Where
- PV = KO EPS in year 2022 = 2.28 $
- i = growth rate of KO EPS estimated above = 16.9%
- n = years of investment = 5 years in 2027
By plugging these numbers in the above formula we estimated KO’s EPS in year 2027 will be 4.98$.
Now we will go back to see the lowest (P/E) for KO in same years period which 17.51 in year 2017.
Now that we have (P/E) ratio and the prospected EPS in 2027, all what we have to do is to multiply these two numbers and see what KO’s stock price will be in year 2027, which is as following:
KO’s Stock price in 2027 = (4.98)*(17.51)= 87.2$
Bottom line, KO’s Stock price will increase from 63.82$ which is the price in the market as Dec 2022, to 87.2$ in year 2027, which means that if you invest 10,000$ now, it will be 13,663.4$ in 2027 and you will make 3,663.4 plus the dividend, and your capital will increase by +36.6%.
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