I am in Johannesburg, South Africa, having recently returned from a trip to Zimbabwe and Botswana. I have been in this region for several weeks and what I have seen has affirmed for me Coca Cola's excellent marketing efforts. Coca Cola's trademark is the most familiar trademark in Zimbabwe, welcoming people to communities and greeting people in billboards throughout towns, as in the "All roads lead to Refreshment" signs I saw in Bulawayo. Here in South Africa, one has a hard time even seeing Pepsi products, which are shipped in from Namibia. The soft drink markets in this region are dominated by Coke.
What has confused me for the recent few years has not been the downturn in Coke's growth--it goes with the territory--but the very high multiples the investment community has placed on KO's shares. Even with all the down mood, Coke's PE is currently around 50. To illustrate the valuation, I do not believe Coke had such a high value placed on it in all the sixteen years in which the great Roberto Goizueta was at the helm. Certainly part of Coke's value is tied to the high PEs which many companies enjoy, but I cannot justify Coke's valuation in light of the firm's low growth potential. To put another way, Coke is trading in the PE range of Microsoft a few years ago without the growth to show for it. I emphasize that I do not blame the excellent management the firm has but the Market, hardly always efficient, is another matter.
In the early 90s, Coke's PE was around 25 to 30. To match those levels, the current price of around $50 will have to drop into the early $30s. I tend not to own shares in firms for less than a year, and often for much longer. With the way the market has been fluctuating, I am hopeful that another opportunity will come around with Coca Cola.
All my best,
Osman. |
