Over the past six months, PepsiCo’s stock price fell to $130.15. Shareholders have lost 18.6% of their capital, disappointing when considering the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is now the time to buy PepsiCo, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is PepsiCo Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why PEP doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, PepsiCo’s 4.2% annualized revenue growth over the last three years was tepid. This was below our standard for the consumer staples sector. 
2. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
PepsiCo’s average quarterly sales volumes have shrunk by 2.4% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
3. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect PepsiCo’s revenue to stall, a deceleration versus This projection is underwhelming and indicates its products will see some demand headwinds.
Final Judgment
PepsiCo’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15.6× forward P/E (or $130.15 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of PepsiCo
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