Over the years investors have made fortunes by investing in large companies that have fallen on tough times. Examples include Commonwealth Bank of Australia (ASX: CBA) that was trading at just $24 in early 2009, Flight Centre Travel Group Ltd (ASX: FLT) that hit $3.74 at around the same time, or even AMP Limited (ASX: AMP) that has shot up from $3.50 in 2012 to nearly $6 this year.
Five-year low!
Coca-Cola Amatil Ltd (ASX: CCL) shares on Friday hit a new five-year low of just $8.81. That's a long way from the lofty highs of nearly $16 reached in 2012 and means that anyone who bought shares over the last five years will be sitting on a capital loss, though the group's solid dividend has made it a slightly less painful ride.
Is NOW the time to buy?
Coca Cola's shares are currently trading on a trailing price to earnings ratio of 13 and dividend yield of 6.6% franked at 75%. But this is where things get tricky, making a good guestimate of the forward price to earnings ratio and dividend yield is quite difficult with so much uncertainty surrounding the plans of new CEO Alison Watkins.
Prominent stock analysts present a mixed view, some say that the share price has fallen so far that it must be a bargain, while others believe Coca-Cola is a falling knife with a few hands to cut yet.
Expectations vs Reality
Coca-Cola is expected to deliver earnings around 25% lower than last year, meaning that the company is currently trading on a forward price to earnings ratio of 17 and dividend yield of 4.9%.
But this could well be the bottom for the soft-drinks maker as conditions in Indonesia have stabilised, the company has released a new, smaller version of its canned range, and the group has picked up a good range of alcoholic drinks to distribute around Australia.
Earnings and dividends per share should rise in FY15 and the group could once again be the type of company that the great Warren Buffett might pick up (Mr Buffett owns 9% of the American parent company).
