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Why this is the ultimate time to buy Coca-Cola Amatil Ltd

A brief look at Coca-Cola Amatil Ltd’s (ASX: CCL) share price chart over the last 13 months or so will tell you that investors aren’t too bullish on the stock.

Since hitting a high of $15.18 in May last year, the shares have dropped to just $9.13 – a whopping 39.9% hit on the value of the investment. To make that figure look even worse, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has climbed nearly 7% in that time while other market darlings like Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL) have jumped 14.6% and 7.6% respectively.

And, to be fair, the stock’s plummet has largely been justified. A pricing war with Schweppes has impacted the company’s margins and market share, its profits have taken a huge hit, its SPC Ardmona canning business is struggling and there are now doubts regarding the company’s growth prospects in Indonesia.

Believe it or not though, it is actually because of these issues that the stock is such a good buy today. After all, the best time to buy a stock is when the rest of the market is fearful…

Warren Buffett once said “I like wonderful brands. If you take care of a great brand, it’s forever”. He has also sworn to never sell a single share of Coca-Cola Amatil’s parent company, The Coca-Cola Company, given the strong ‘moat’ (durable competitive advantages) the brand commands.

While Coca-Cola Amatil does not own the Coca-Cola brand, it does have exclusive distribution rights for various geographic areas around the world, including Australia, New Zealand, Indonesia, Papua New Guinea, Samoa and Fiji. Currently, 27% of its revenue comes from outside of Australia, although that is set to increase substantially over time.

This international expansion will help drive volume growth while productivity improvements and cost cutting initiatives being undertaken by new management will provide a strong boost for margins which should drive profitability higher over the long term. In fact, some analysts suggest up to $100 million in costs could be removed from the business as part of its strategic review.

Although the shares could well remain volatile over the coming weeks, or even months, given the issues currently facing the business, I have strong faith in the company’s long-term prospects. That’s why I bought shares when they were priced at $9.39 and am seriously considering adding to my stake today.

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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.

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