Coke Is Trading at Its Steepest Premium to Pepsi in Years. History Says This Is What Happens Next.
Coke's strong results back up its premium valuation, but Pepsi may simply be too cheap to ignore.
Overview
Every day, people around the world choose between Coke and Pepsi to quench their thirst for soda. Similarly, income investors may find themselves deciding between investing their hard-earned savings in Coca-Cola (NYSE: KO) or PepsiCo (NASDAQ: PEP).
Both stocks have historically fetched premium valuations thanks to their industry leadership, diverse product portfolios, and ultrareliable dividends. But Coca-Cola is crushing Pepsi with a 19.4% year-to-date return, compared with a 4.2% decline in Pepsi stock. And over the past five years, Coke is up 53.2%, while Pepsi is down 8.1%.
Details
Coke's 10-year median price-to-earnings (P/E) ratio is 27.7 -- only slightly higher than Pepsi's 10-year median P/E of 26. But today, Coke's forward P/E is 25.3 while Pepsi's has slumped to just 16 -- the widest disparity in years.
Source
Originally published at www.fool.com.