PepsiCo has stood its ground since it was established in 1898 despite fierce competition with The Coca-Cola Company, other beverage companies like Keurig Dr Pepper, Red Bull GmbH, and Monster Beverage Corporation, and other multinational food and beverage companies like Kraft Heinz, Mondelez International, Nestlé, and Unilever. The company is known for its Pepsi-Cola flagship beverage product but it is also behind some of the popular brands found in groceries and other retail stores. It has succeeded in growing its business through a series of acquisitions and expansion of its product portfolio throughout the decades. This article lists and discusses the pros and cons or advantages and disadvantages of PepsiCo.

A Refreshing Investment: An Analysis of the Advantages and Disadvantages of PepsiCo Stock

Pros: PepsiCo Stock Advantages

The company started with its Pepsi brand of soft drink in 1898. The company expanded its product line in the 1960s and specifically went public in 1965 following the merger between Pepsi-Cola Company and Frito-Lay. The new company became known as PepsiCo and it trades on the New York Stock Exchange under the PEP ticker symbol. A series of acquisitions and divestments in the following years resulted in the further expansion of its product line. The company also moved its shares to Nasdaq in 2017. Below are the advantages of investing in PepsiCo stock:

• Historical Stock Growth: Historical data does not guarantee future performance but it still can be factored in investment decisions. PepsiCo has experienced an upward movement in its stock price since it became public. The price specifically grew from around USD 60.00 in 2010 to above USD 150.00 in 2022. There are several dips in the entire price trend but the overall direction demonstrates stock price growth. This historical performance showcases its ability to remain relevant despite tough competition.

• Large-Cap Value Stock: The company has a market capitalization of around USD 237.46 billion. It is part of the Nasdaq 100 component and the S&P 100 and S&P 500 components. This makes it a large-cap stock. It is also considered a value stock. These characteristics suggest lower liquidity risk, ease of access to capital for further business expansion, strong favorable reputation from the investment community, stable growth prospects, and suitability in long-term or buy-and-hold value investing strategy.

• Ideal Defensive Stock: Another notable advantage of PepsiCo stock is that it is considered a defensive stock. Its products are considered essential goods and are in demand regardless of the economic condition. This means that investing in PepsiCo adheres to the principles of defensive investing and can also be suitable for moderate investors seeking to grow their capital in the stock market in the long term while looking for some protection against losses due to economic downturns as part of their wealth preservation strategies.

• Regular Dividend Payments: The company has a long history of issuing dividends on a quarterly basis to its investors since 2000. It currently has an annual dividend yield of above 3 percent. PepsiCo has also been regarded as a dividend aristocrat because it has increased its dividend for over 25 consecutive years on top of meeting market capitalization requirements and liquidity threshold criteria. This makes it an attractive option for investors seeking to build or expand further their passive income-generating stock portfolios.

• Strong Business Performance: Part of the appeal of investing in PepsiCo is its diversified product portfolio across the entire food and beverage market. It is not dependent on a single market or product line. The company also operates in more than 200 countries to maximize growth opportunities in emerging markets while lessening reliance on a single geographic market. The strong brand recognition from consistent marketing efforts has contributed to its stable revenue streams. It has also adapted to changing consumer preferences.

Cons: PepsiCo Stock Disadvantages

It is true that PepsiCo remains one of the dominant multinational food and beverage companies but intense industry rivalry due to the presence of The Coca-Cola Company and other direct and indirect competitors have forced it to spend on marketing and prevented it from cornering various market segments. It has been also embroiled in various controversies that have affected its public reputation. The company is also exposed to various risks due to the nature of its business and its global operations. Below are the disadvantages of investing in PepsiCo stock:

• Threats From Competition: The intense industry rivalry has compelled PepsiCo to spend a lot on marketing to keep its brands. It allocated between 2 to 5 percent of its total revenues to marketing expenses. This has affected its profitability and returns for investors. The fierce competition has also raised the bargaining powers of the consumers and forced it to adapt to changing consumer preferences by introducing varieties in its product portfolio. This also has notable cost and overall profitability implications.

• Presence in Mature Markets: It is true that the company has been maximizing available growth opportunities in emerging markets but the fact remains that it derives around 50 to 60 percent of its revenues from its United States market and around 20 percent from its European market. Pepsi-Cola and 7UP are the main revenue drivers. The problem with this is that growth opportunities for the company have become limited due to market saturation. It needs to capitalize further its presence in emerging markets.

• Significant Debt Levels: PepsiCo generated 91.47 billion in revenues and 9.16 billion in net income in 2023. However, despite its favorable revenue growth and profitability in recent years, it still has high levels of debt. The company has used debt to finance its strategic acquisitions, capital expenditures, and expansions. It has accrued more debt than equity based on a 2.4 debt-to-equity ratio for 2023. This can be regarded as a disadvantage of PepsiCo stock because of its impact on financial flexibility.

• Exposure to Several Risks: Another disadvantage of investing in PepsiCo stock centers on its various risk exposures. It faces regulatory risks related to health and safety standards that can affect its marketing practices and its pricing strategy. Furthermore, because of its global operations, it is exposed to currency exchange risk that can impact its revenues and profits due to fluctuations in foreign currencies. The company is still a defensive stock but this does not mean that economic downturns will not affect its revenues.

• Commodity Price Volatility: Companies in the food and beverage industry are heavily exposed to fluctuations in the prices of various commodities like sugar and sweeteners, agricultural products like corn, packing materials, and energy. Their prices can be highly volatile due to factors like weather conditions, geopolitical events, and changes in supply and demand dynamics. These can have a significant impact on their profitability. Hence, when commodity prices rise, production costs increase.