The Motley Fool

Why I’m avoiding Coca-Cola Amatil Ltd (ASX:CCL) shares

Behind water, Coca-Cola is the world’s most famous drink. Introduced in 1886 by Dr. John S. Pemberton and initially sold via fountains, Coca-Cola is now consumed approximately 2 billion times per day. 

Coca-Cola is Warren Buffett’s favourite drink and also one of the many success stories that has contributed to the incredible returns of Berkshire Hathaway Inc. (NYSE:BRK-A).

However, The Coca-Cola Co. (NYSE:KO) is not the same company as Coca-Cola Amatil Ltd (ASX: CCL). 

Whilst The Coca-Cola Co. owns a significant stake in Coca-Cola Amatil, they are separate companies with varying performances.

Since June 2008, The Coca-Cola Co share price has increased by approximately 60%. In the same time period, Coca-Cola Amatil has increased by 31%.  

Despite the product having the same competitive advantage that prompted Buffett’s investment, shareholder returns have been completely different. But does this mean that Coca-Cola Amatil has room to move? 

Coca-Cola Amatil is primarily involved in the manufacturing, distribution and marketing of beverages. Currently, Coca-Cola Amatil has a market cap of $6.52 billion and a P/E ratio of 17. 

In recent times, Coca-Cola Amatil has failed to grow earnings with sales, revenue and net profits all stagnant. From 2013, earnings per share fell from $0.66 to $0.32 in 2016 before a recovery to $0.52 as at 30 June 2017. 

Since 2008, Coca-Cola Amatil has earnt $5.77 per share and has paid out $4.80 per share as a dividend. With retained earnings of $0.97 per share, Coca-Cola Amatil has grown book value per share by only $0.27. 

The combination of poor earnings results and inefficient profit allocation partially affirms the underperformance of its American counterpart. Additionally, with a debt to equity ratio of 1.25:1, Coca-Cola Amatil does not present any overt value to me. 

Attention must also be paid to the growing anti-sugar movement and a looming sugar tax that could eat into profits. 

Foolish takeaway 

Whilst the brand of Coca-Cola is an example of a marketing masterclass, Coca-Cola Amatil is not the same company that Warren Buffett invested in across the Pacific Ocean. As such, I’ll stick to water for now. 

7 of 8 People Are Clueless About This Trillion-Dollar Market

One of our investors has recently returned from a research trip to Silicon Valley... and has a warning for fellow investors:

Because he works for an organization dedicated to spreading great investing ideas, his video report is free today... so you can see it and decide for yourself.

Don't miss your chance click here to learn about this warning and how you might be able to profit!

Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!