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Should you buy Coca-Cola Amatil?

It’s been a rollercoaster ride for shareholders in Coca-Cola Amatil (ASX: CCL) this year, with shares in the manufacturer and distributor of some of the strongest brands in the world trading 21% lower than their $15.43 high in March. So, given the discounted price, is this a stock that investors should be taking advantage of or continuing to avoid?

Over the past decade, CCA, which is 29% owned by the US beverage giant The Coca-Cola Company (NYSE: KO), has remained one of Australia’s strongest and most consistent companies and maintained its reputation of keeping its earnings growth steady through both the good and bad times. However, this year has proven to be a struggle and investors have felt the pain.

On top of a strong Australian dollar and pressures from supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), the company has also been involved in a price war with key competitor Schweppes, the distributor of popular fizzy drink Pepsi. Since having launched its low-sugar Pepsi Next drink in Australia in September 2012, Schweppes has kept its prices low to attract customers away from CCA.

However, the pricing war simply cannot last forever. Prices will have to be increased soon or else the pressure would be felt by Schweppes just as much as it has with CCA. What’s more, Coke’s sales at drink coolers, which reap higher margins, have also continued to rise, which suggests that Coke’s earnings may not remain flat for too long.

What’s more, the company will also re-enter the beer and cider market next month, which should reap impressive rewards in the long-run.

Indonesia

Indonesia remains one of CCA’s greatest growth prospects, boasting a population of 240 million people which is roughly 10 times the size of Australia. Currently, per capita consumption rates in Indonesia are just 14 products per year, as compared to over 250 in Australia, representing an enormous opportunity to expand in this promising market.

Already, the company’s sales in the region have risen over 60% since 2008 and are expected to hit $1 billion this year. Whilst the past 5 years have been impressive however, it is the future that counts, and growth could certainly last for decades to come.

Foolish Takeaway

Whilst the company has certainly hit a rough patch, having announced that it expects earnings before interest and tax through to December to be roughly 5-7% below the previous year’s result, the sheer strength of the company should prevail in years to come. At $12.30 today, the shares could be an excellent addition to your portfolio.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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