ebook essays pieces of the puzzle
Friday, September 30th, 2011
the real thing

Those of us that put charts out into the world hope that they tell a story.  This one tells many.  It pictures more than twenty-five years of Coca-Cola (KO).

The top panel shows sales per share.  Given globalization and super-sizing — not to mention that KO has one of the best brands in the world — it’s not surprising that the line moves steadily higher throughout most of the period.  Also a factor was the shrinkage in the share base over time.

Notice that net income per share ramped at an even faster pace.  Like most companies, KO got leaner.

However, the tale is really told in the final panel.  The price of the stock has gone sideways for more than thirteen years, even as the fundamentals have kept chugging away.  That’s what can happen when a stock gets badly overvalued.  There were opportunities to trade it along the way, but the odds were very much against you if you wanted to buy and hold (which, if you’ll recall, was the religion of the day).

Finally, the difference between price and total return shows that even a dividend yield that was very modest throughout much of this time adds quite a bit of value over the years.

I figure if I was teaching finance classes, I could get a whole semester out of Coke, its fundamentals, the changing demand for its stock, and the incredible (bifurcated) market environment we’ve experienced.  When it comes to examples, it’s the real thing.  (Chart:  Bloomberg terminal.)