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By Will Healy–Aug 1, 2026 at 5:08AM EST
+Fool.comon Share
Summarize with AI
Key Points
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PepsiCo's lower P/E ratio and higher dividend yield could win over some investors.
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Coca-Cola is an asset-light business compared to PepsiCo.
Coca-Cola( KO-1.02%) stock is riding high following its second-quarter earnings report. The cola giant beat revenue and earnings estimates, and products like Diet Coke and Coke Zero delivered a particularly strong performance.
Nonetheless, a surface-level analysis of Coca-Cola versus archrival PepsiCo might persuade investors to choose the latter. After all, PepsiCo sells for a lower P/E ratio and its dividend yield is significantly higher. Also, even though Coca-Cola was one of Warren Buffett's most famous investments, Berkshire Hathaway has not purchased a single share since 1994.
Fortunately for Coca-Cola bulls, a surprising reason may keep investors in Coca-Cola stock.
Image source: Getty Images.
Why Coca-Cola is the beverage stock of choice
As previously mentioned, PepsiCo's 19 P/E ratio is well below Coca-Cola's earnings multiple of 27, a surprisingly high premium given the companies' similarities.
Also, PepsiCo's 4% dividend yield is well above Coca-Cola's return of 2.3%. Both stocks are Dividend Kings by virtue of having increased the dividend annually for more than 50 years. Thus, PepsiCo seems to have an advantage with income investors.
However, Coca-Cola stock has delivered higher overall returns despite those advantages. Moreover, this is not a temporary phenomenon. Thanks to a breakout in April, Coca-Cola's returns exceeded those of PepsiCo over the last year. Additionally, in nearly every time period going back to 1990, Coca-Cola has outperformed its archrival.
KO Total Return Level data by YCharts
Some subtle differences in Coca-Cola's business model may explain its outperformance. Unlike PepsiCo, Coca-Cola outsources all bottling, trucking, and distribution to third parties. That makes it a comparatively asset-light business, and without those expenses, it earns higher operating margins than PepsiCo.
Furthermore, despite its more than 200 brands, Coca-Cola remains exclusively a beverage business. In contrast, PepsiCo's ownership of food brands such as Frito-Lay and Quaker also places it in a business that has higher input costs.
Consumers have also turned against packaged foods in favor of more natural or organic options, which serves as another headwind that Coca-Cola does not face. In the minds of some investors, those advantages might justify Coca-Cola's higher premium.
Expand
NYSE: KO
Coca-Cola
Today's Change
(-1.02%) $-0.90
Current Price
$87.59
Key Data Points
Market Cap
$377BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.
Day's Range
$86.82 - $88.00
52wk Range
$65.35 - $90.92
Volume
14.7M
Avg Vol
17.6M
Gross Margin
61.95%
Dividend Yield
2.37%
Choosing Coca-Cola stock
Coca-Cola has attracted a premium valuation amid a comparatively asset-light business model that generates higher margins.
Admittedly, income-oriented investors should probably choose PepsiCo for its much higher dividend yield. Also, Coca-Cola trades at its steepest premium to PepsiCo in years.
However, in my view, Coca-Cola stock justifies that higher valuation. Ultimately, overall returns are what are important to most investors, and Coca-Cola has met that criterion nearly every time period.
Moreover, Coca-Cola's consistently higher margins make it less likely PepsiCo is going to fully close that valuation gap. Thus, investors should expect that outperformance to continue.
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About the Author
Will Healy is a contributing Motley Fool stock market analyst covering technology and consumer goods industries. Before The Motley Fool, Will was a freelance writer covering stocks and personal finance for MSN Money, Yahoo! Finance, and Nasdaq. Earlier in his career, he was an expert in geographic information systems, applying spatial and IT skills to perform RF and demographic analysis in the telecom industry. He holds a bachelor’s degree in journalism from Texas A&M University and an MBA in finance and strategy from the University of Texas at Dallas.
Stocks Mentioned
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Coca-Cola\
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NYSE: KO\
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$87.59\
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(-1.02%)-$0.90
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