Coca-Cola stock (NYSE: KO) is considered a better pick than Costco stock (NASDAQ: COST) in the Consumer Defensive sector due to its higher valuation multiple of 5.9x revenues compared to Costco’s 1.4x. This higher valuation is attributed to Coca-Cola’s superior profitability. Despite Costco outperforming Coca-Cola in recent years, with a 110% increase compared to Coca-Cola’s 20%, the analysis suggests that Coca-Cola will offer higher returns in the next three years.
Costco has seen better revenue growth, with a 13.4% increase from $167 billion to $242 billion from 2020 to 2023. In contrast, Coca-Cola has experienced an average annual revenue growth rate of 11.6% during the same period, reaching $45.8 billion in 2023. Costco’s strong growth is partly driven by its membership income and high membership renewal rates. However, Coca-Cola is expected to see low single-digit average growth in the next three years, while Costco may experience mid-single-digit average growth.
Coca-Cola is more profitable than Costco, with a higher operating margin of 28.8% compared to Costco’s 3.4%. However, Costco offers lower financial risk, with a debt percentage of 2.5% of equity compared to 15.5% for Coca-Cola. Costco also has a higher cash percentage of assets at 22%, while Coca-Cola has 13%. While Costco has seen better revenue growth and financial position, Coca-Cola’s profitability makes it a more attractive investment prospect.
Using P/S as a base for comparison, the analysis suggests that Coca-Cola will offer better returns in the next three years over Costco due to its better valuation. Coca-Cola’s stock currently trades at 5.9x sales compared to its historical average of 6.8x, while Costco’s stock trades at 1.4x revenues compared to its historical average of 1.1x. This indicates that Coca-Cola has a higher growth potential if its valuation multiples were to return to their historical averages.
Overall, the analysis concludes that Coca-Cola is a better investment choice compared to Costco in the next three years, despite Costco’s better revenue growth and financial position. Investors looking to make informed investment decisions can utilize the interactive dashboard analysis of Coca-Cola vs. Costco to gain more insights and compare key metrics that matter across industries.
