Is PepsiCo Stock Price Offering a Buying Opportunity?

PepsiCo (NYSE: PEP) stock price soared more than 25% this year. The stock price is currently trading around an all-time high of $140. Some traders believe the recent gains have made PEP shares expensive and it’s wise to wait for a better entry point.

Meanwhile, some investors claim PepsiCo stock price is poised to extend the momentum.

PEP shares are trading at higher valuations compared to the industry average. Its stock trades around 25 times to earnings when the industry average is at 20 times.

PEP PepsiCo, Inc. daily Stock Chart

Financials are Backing PepsiCo Stock Price

PepsiCo reported stronger than expected growth in financial numbers. Its revenue of $17.19 billion topped the consensus estimate by $260 million. The revenue increased by 4.3% in the third quarter compared to the year-ago period.

Its CEO Laguarta said, “We are making good progress against our strategic priorities and our businesses are performing well as we continue to make the necessary investments in our capabilities, brands, manufacturing and go-to-market capacity to propel our future growth.”

On the negative side, the company’s earnings remained under pressure. It generated earnings per share of $1.49, down from last year’s earnings of $1.75. Its earnings in the past three quarters stood at $3.94 compared to $3.97 per share in the previous year period.

Lower Earnings are Impacting Dividend Growth

PepsiCo is among the companies that are well known for offering steady growth in dividends.

It has increased quarterly dividends in the past 47 successive years. The company currently offers a quarterly dividend of $0.95 per share, yielding around 2.76%.

The decline in earnings per share has been impacting its cash generation potential. PEP expects to generate free cash flows in the range of $5 billion. The free cash flows offer a limited room for dividend growth. Its annual dividend payments will account for $4.7 billion this year.

Overall, PepsiCo stock price appears expensive based on higher valuations and lower cash flows. Therefore, waiting for a better entry point appears like a good investment strategy.

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    Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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