Is Coca-Cola Still a Buy After a 54.4% 5-Year Gains? A Deep Dive into Valuation Models and Growth Potential

The Coca-Cola Company (KO) has long been a cornerstone of income-focused portfolios, with its 63-year streak of consecutive dividend increases and a brand that transcends borders. However, after a 54.4% gain over five years, investors face a critical question: Is Coca-Cola still a buy? To answer this, we must dissect its valuation through discounted cash flow (DCF), dividend discount model (DDM), and relative valuation frameworks, while evaluating its growth trajectory and sustainability.

Valuation Models: A Tale of Two Narratives

Discounted Cash Flow (DCF):
Coca-Cola's projected free cash flow (FCF) growth paints a cautiously optimistic picture. Analysts estimate FCF will surge from $5.6 billion in 2025 to $19.4 billion by 2035, a compound annual growth rate (CAGR) of approximately 12.5%. This trajectory, driven by strategic shifts toward healthier beverages and global market expansion, suggests robust long-term cash generation. However, the current FCF dividend payout ratio of 157.56%-significantly above its 10-year average of 133.44%-raises concerns about sustainability. A DCF model would require a high discount rate to account for this overhang, potentially tempering intrinsic value estimates.

Dividend Discount Model (DDM):
Coca-Cola's dividend yield of 2.85% and a payout ratio of 77.4% (based on trailing twelve months) appear sustainable given analysts' 7.13% CAGR EPS growth projections. The DDM, which values stocks based on future dividend payments, would favor Coca-Cola's 4.07% five-year average dividend growth rate and its 63-year streak of increases. Yet, the FCF payout ratio exceeding 100% introduces a critical caveat: the company may need to borrow or reduce dividends if FCF stagnates, a risk not fully captured in traditional DDM assumptions.

Relative Valuation:
Coca-Cola's price-to-earnings (P/E) ratio of 22.8x sits between the beverage industry average of 17.6x and its direct peers' average of 26.3x according to financial analysis. This suggests the stock is neither undervalued nor overvalued relative to its sector. However, forward P/E multiples are expected to normalize from 27.89x in 2024 to 18.53x by 2028, indicating potential undervaluation as earnings growth outpaces the multiple contraction.

Growth Potential: A Balancing Act

Coca-Cola's 4.77% revenue CAGR and 7.13% EPS CAGR through 2028 according to market analysis are underpinned by its global footprint and diversification into low- and no-sugar beverages. For instance, its 2025 third-quarter results showed 6% organic revenue growth, driven by emerging markets and innovation in health-conscious products. Yet, the company's high payout ratio and FCF challenges could limit reinvestment in these opportunities.

Historically, Coca-Cola's P/E ratio has fluctuated wildly, peaking at 158.21 in 2017 and hitting a low of 18.22 in 2020. At 24.05 as of November 2025, it trades 33% below its 10-year average, suggesting the market may be discounting risks such as currency headwinds and tax obligations. However, this also creates a margin of safety for long-term investors who believe in its ability to sustain earnings growth.

Risks and Rewards

The primary risk lies in the FCF payout ratio. Paying out more in dividends than the company generates in FCF could force management to cut dividends or issue debt-a scenario that would severely undermine Coca-Cola's appeal to income investors. Conversely, if FCF growth materializes as projected reaching $19.4 billion by 2035, the company could fund dividends and reinvest in growth without compromising its financial health.

Conclusion: A Buy for the Patient Investor

Coca-Cola's valuation models present a mixed picture. The DCF model hints at upside if FCF growth accelerates, while the DDM supports its dividend sustainability given EPS projections. Relative valuation suggests the stock is fairly priced, with room for appreciation as forward multiples normalize. For investors with a 5–10 year horizon, Coca-Cola remains a compelling buy, particularly for those prioritizing income over aggressive capital gains. However, the high payout ratio and FCF challenges warrant close monitoring. As one analyst aptly noted, "Coca-Cola's enduring brand and global reach make it a defensive play, but its financial metrics demand a nuanced approach" according to financial commentary.