P.,
Maybe in the USA one considers buying Coke or Pepsi (whatever's on sale) part of the "normal" grocery bill. But even here, there are a number who would just as soon drink water or iced tea in lieu of Coke because it's far cheaper and more healthy to boot. In good times, this number declines, in bad times it rises.
Asia is having bad times now, with very likely worse times to come. Right now, in many an emerging market, this product is a completely frivolous luxury. When one has lost his job and is barely able to feed, clothe, and shelter himself and his family, Coke just might end up pretty far down on the "normal" grocery list. These emerging markets are supposed to be KO's growth engine. It appears that a couple of cylinders may have thrown a rod.
The fall-off in KO's price last year was entirely justified. Nothing justifies its recent steep rise, especially given its collapse in earnings growth. As of now, calendar 1998 projects zero earnings growth, calendar 1999 projects 18% earnings growth (maybe). Averaged over the two years, KO's earnings growth is less than 20% of its 46 P/E. As KO is not, nor is it likely to become, an internet stock, is it really worth $77.50/share with these prospects? Obviously, the market appears to think so. I'm not so sure. |
