Keurig Dr Pepper stock (NYSE: KDP) has increased almost 20% in the last six months and it now trades a little below $36 per share. The rise was driven by stimulus measures and the gradual lifting of the lockdowns which have led to expectations of a pick up in volume sold as supply constraints ease. Also, the successful rollout of the vaccination program has enthused markets which feel demand will go up further. The recent spike in Covid positive cases did not take a toll on KDP stock as the company derives 44% of its revenue from bottled beverages (ending up in grocery and convenience stores) and 38% of sales from Keurig brewing systems and K-Cups, benefiting directly from the sudden surge in at-home consumption, with manageable exposure to decreased concentrate sales. KDP continues to have an edge over rivals Coca-Cola and PepsiCo, as its coffee segment (38% revenue share) continues to see growth with people moving away from carbonated drinks and replacing the same with beverages like coffee. This growth is set to continue as working at home by millions of people is benefiting the company’s direct and licensed K-Cup coffee sales.
But will KDP stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for KDP stock average more than 7% in the next three-month (63 trading days) period after experiencing a 20% rise over the previous six-month (126 trading days) period. Notably, though, the stock is likely to outperform the S&P500 over the three months, with an expected return which would be 6% higher compared than the S&P500. What also comes out of the analysis is that patient investors will benefit, as the stock provides healthy double-digit returns to ones who wait it out for a year.
But how would these numbers change if you are interested in holding KDP stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test KDP stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
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MACHINE LEARNING ENGINE – try it yourself:
IF KDP stock moved by -5% over five trading days, THEN over the next 21 trading days, KDP stock moves an average of 5 percent, which implies a return which is 3% more than that of the S&P500.
More importantly, there is 78% probability of a positive return over the next 21 trading days and 71% probability of a positive excess return after a -5% change over five trading days.
Some Fun Scenarios, FAQs & Making Sense of KDP Stock Movements:
Question 1: Is the average return for Keurig Dr Pepper stock higher after a drop?
Consider two situations,
Case 1: Keurig Dr Pepper stock drops by -5% or more in a week
Case 2: Keurig Dr Pepper stock rises by 5% or more in a week
Is the average return for Keurig Dr Pepper stock higher over the subsequent month after Case 1 or Case 2?
KDP stock fares better after Case 1, with an average return of 4.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.6% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Keurig Dr Pepper stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Keurig Dr Pepper stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For KDP stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although KDP stock appears to be an exception to this general observation.
KDP’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
It’s pretty powerful to test the trend for yourself for Keurig Dr Pepper stock by changing the inputs in the charts above.
While KDP stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Coca-Cola vs Merck shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.