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Coca-Cola Amatil shares are down 17% in a month: Should you buy the dip?

It certainly has been a disappointing month of trade for the Coca-Cola Amatil Ltd (ASX: CCL) share price.

Over the last 30 days the beverage company’s shares have sunk a sizeable 17%, compared to a 1.6% decline by the ASX 200.

Why has the Coca-Cola Amatil share price crashed lower?

The catalyst for Coca-Cola Amatil’s underperformance over the last 30 days was the underwhelming market update given at its investor day at the end of last month.

At the event management warned investors that it expected 2019 to be another “transitional” year for the company due to its investments in its Accelerated Australian Growth Plan and the Indonesian Accelerate to Transform Plan.

In addition to this, management advised that the company’s “results will also be impacted by the container deposit schemes in Australia, higher PET resin costs and a weak Indonesian Rupiah.”

Management was a little more optimistic on its medium term outlook, though.

It said: “Overall, we remain committed to our Shareholder Value Proposition targeting a return to mid-single digit earnings per share growth in the medium term. This will depend on the success of revenue initiatives in Australia, Indonesian economic factors and regulatory conditions in each of our markets.”

But judging by its share price decline since then, it appears many shareholders aren’t willing to stick around to find out if this proves to be the case.

Should you buy the dip?

This decline means that Coca-Cola Amatil’s shares are now changing hands at 16x earnings. While I think that this is about fair for a company with such a wide distribution network and defensive qualities, I’d class it as a hold until its growth profile improves.

Until then, I would prefer to be invested in companies with strong medium term growth prospects such as A2 Milk Company Ltd (ASX: A2M) or Collins Foods Ltd (ASX: CKF).

Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Coca-Cola Amatil Limited and Collins Foods 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.

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