PepsiCo's Slump: Is This a Buy or a Bust?

The stock market can be a fickle beast, and right now, it's chewing on PepsiCo (PEP) like a bag of stale chips. While the broader S&P 500 Consumer Staples sector has been a relative safe haven this year, PEP's shares are cratering. Let's dig into why this disconnect exists—and whether now is the time to scoop up this snack giant… or run for the hills.

The Numbers Don't Lie: PEP's Pain vs. Sector Gains

Let's start with the raw data. .

• PEP's YTD 2025 performance: Down 14% (as of June 2025).
• S&P 500 Consumer Staples (XLP): Up 4.5% over the same period.
• Key competitors: Coca-Cola (KO) is up 15.2%, Monster Beverage (MNST) is up 14.2%, and even Keurig Dr Pepper (KDP) is ahead by 6.2%.

This isn't just a minor hiccup. PEP's 52-week decline of 23.9% vs. XLP's 7.3% gain shows a deepening divergence. So why is the market punishing PEP while loving its peers?

The Three Horsemen of PEP's Downfall

1. Earnings Misses and Guidance Cuts
2. Q1 2025 revenue dropped 1.8% to $17.9B, with adjusted EPS missing estimates by a penny.

3. PepsiCo slashed its 2025 outlook, projecting flat core EPS growth instead of the earlier “mid-single-digit” target. The culprit? Rising supply chain costs (thanks to tariffs) and weakening demand in North America, where beverage sales plunged 3%.

4. Structural Stagnation

5. Frito-Lay's Pricing Paradox: Aggressive price hikes (to offset inflation) are backfiring. Snack volumes have cratered 10% as budget-conscious consumers cut back. Meanwhile, private-label brands are stealing share.

6. Beverage Innovation Lag: While Coke's Coke Zero Sugar dominates, PepsiCo's soda lineup feels stuck in the 1980s. Even its $2.25B acquisition of Poppi (a probiotic soda) feels like a desperate “me-too” move.

7. Valuation vs. Reality

8. PEP's forward P/E of 16.16 is below the S&P 500's 20.81 and the sector's 18.67. On paper, this looks like a bargain. But analysts have slashed 2025 EPS estimates by 4.1% in the past month, and 2026 guidance is down 4.7%.

The “Mad Money” Moment: Should You Buy the Dip?

Here's where it gets spicy. On one hand, PEP's valuation is screaming “discount!”—it's trading at 20% below its 5-year average P/E. The dividend yield of 3.6% is a rare treat in this era of high rates.

But here's the catch: execution risk is sky-high.

• Supply Chain Woes: Tariffs on aluminum and corn aren't going away soon. A 10% tariff on aluminum alone could add $0.02 per soda can—a margin killer.
• Consumer Shifts: Health trends and recessionary spending are hitting snacks and sugary drinks hard. PepsiCo's Quaker Foods unit is struggling as people opt for healthier breakfasts.
• Technical Weakness: PEP is trading below its 50-day and 200-day moving averages—a bearish sign. The Zacks Rank #4 (Sell) isn't waving a flag; it's firing a flare.

Historically, the data underscores the peril here. When PEP reported an earnings beat between 2020 and 2025 and was held for 20 days, the strategy yielded a catastrophic -99.72% return, with a maximum drawdown of -31.84%. Even in the face of positive surprises, the stock's volatility and poor post-earnings performance suggest investors should temper optimism.

Bottom Line: Wait for the Bottom… or the Boom?

Investors have two paths here:

1. The Contrarian Play: Buy now, betting that PEP's valuation discount and dividend will attract income investors once fears ease. Target: $160 (the $147 consensus target feels too low).

2. The Prudent Play: Wait for two clear signs:

3. A Q2 earnings beat or stabilization in North American sales.
4. Evidence of cost-cutting (like the New York plant closure) actually boosting margins.

Until then? Hold off. PEP's underperformance isn't a typo—it's a warning. This stock needs more than a recovery; it needs a reinvention.

Final Call: PEP's valuation is tempting, but the headwinds are real. If you're a long-term contrarian, this could be a steal—but only if management delivers the goods. For now, I'd keep the popcorn (and the cash) in hand.