Coca-Cola stock (NYSE: KO) decreased almost 7% in the last one week and currently trades at $51 per share. The drop was driven by the recent spike in Covid-positive cases and a new strain leading to lockdowns in the UK, which has led to expectations of the impact of the pandemic lasting longer than earlier projections. This will possibly affect Coca-Cola’s sales which is largely dependent of away-from-home consumption like bars, movie theaters, live sports, etc. Extended lockdowns or new ones will take a toll on the company’s sales which has led to analysts downgrading Coca-Cola’s stock price estimate in the last few days.
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last 20 years, returns for Coca-Cola stock average close to -2% in the next one-month (21 trading days) period after experiencing a 7% drop over the previous one-week (5 trading days) period. Notably, though, the stock is likely to underperform the S&P500 over the next one month (21 trading days), with an expected excess return of –2% compared to the S&P500.
But how would these numbers change if you are interested in holding Coca-Cola 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 Coca-Cola 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 1 day!
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MACHINE LEARNING ENGINE – try it yourself:
IF Coca-Cola stock moved by -5% over 5 trading days, THEN over the next 21 trading days, Coca-Cola stock moves an average of 2.1 percent, which implies an excess return of -0.6 percent compared to the S&P500.
More importantly, there is 66.6% probability of a positive return over the next 21 trading days and 46.5% probability of a positive excess return after a -5% change over 5 trading days.
Some Fun Scenarios, FAQs & Making Sense of The Coca-Cola Company Stock Movements:
Question 1: Is the average return for The Coca-Cola Company stock higher after a drop?
Consider two situations,
Case 1: The Coca-Cola Company stock drops by -5% or more in a week
Case 2: The Coca-Cola Company stock rises by 5% or more in a week
Is the average return for The Coca-Cola Company stock higher over the subsequent month after Case 1 or Case 2?
KO stock fares better after Case 1, with an average return of 2.6% 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 The Coca-Cola Company stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold The Coca-Cola Company 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 the Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For KO stock, the returns over the next N days after a -5% change over the last 5 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 understandably lower than 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.
KO’s returns over the next N days after a +5% change over the last 5 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 The Coca-Cola Company stock by changing the inputs in the charts above. As per Trefis, Coca-Cola’s valuation works out to $55 per share.
What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.