Advertisement
UK markets closed

  • FTSE 100

    8,237.72
    -34.74 (-0.42%)
     

  • FTSE 250

    20,442.35
    -56.35 (-0.27%)
     

  • AIM

    772.57
    +0.19 (+0.02%)
     

  • GBP/EUR

    1.1822
    +0.0000 (+0.00%)
     

  • GBP/USD

    1.2650
    -0.0010 (-0.08%)
     

  • Bitcoin GBP

    50,631.46
    -167.09 (-0.33%)
     

  • CMC Crypto 200

    1,321.13
    -39.20 (-2.88%)
     

  • S&P 500

    5,464.62
    -8.55 (-0.16%)
     

  • DOW

    39,150.33
    +15.53 (+0.04%)
     

  • CRUDE OIL

    80.59
    -0.70 (-0.86%)
     

  • GOLD FUTURES

    2,334.70
    -34.30 (-1.45%)
     

  • NIKKEI 225

    38,596.47
    -36.53 (-0.09%)
     

  • HANG SENG

    18,028.52
    -306.78 (-1.67%)
     

  • DAX

    18,163.52
    -90.68 (-0.50%)
     

  • CAC 40

    7,628.57
    -42.77 (-0.56%)
     

Coca-Cola Consolidated, Inc.'s (NASDAQ:COKE) Stock Is Going Strong: Is the Market Following Fundamentals?

editorial-team@simplywallst.com (Simply Wall St)
·4-min read

Coca-Cola Consolidated (NASDAQ:COKE) has had a great run on the share market with its stock up by a significant 22% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Coca-Cola Consolidated's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Coca-Cola Consolidated

How To Calculate Return On Equity?

The formula for return on equity is:

ADVERTISEMENT

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Coca-Cola Consolidated is:

28% = US$456m ÷ US$1.6b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.28.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Coca-Cola Consolidated's Earnings Growth And 28% ROE

To begin with, Coca-Cola Consolidated has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 19% also doesn't go unnoticed by us. As a result, Coca-Cola Consolidated's exceptional 48% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Coca-Cola Consolidated's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 8.0%.

past-earnings-growth
past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Coca-Cola Consolidated fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Coca-Cola Consolidated Using Its Retained Earnings Effectively?

Coca-Cola Consolidated's three-year median payout ratio to shareholders is 4.0%, which is quite low. This implies that the company is retaining 96% of its profits. So it looks like Coca-Cola Consolidated is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Coca-Cola Consolidated is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

On the whole, we feel that Coca-Cola Consolidated's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard will have the 1 risk we have identified for Coca-Cola Consolidated.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com