Is PepsiCo Stock Fairly Valued?

PepsiCo stock (NASDAQ: PEP) is up almost 12% in the last one year and currently trades at $149 per share, which is above the levels seen just before the coronavirus pandemic. The rally in the stock was driven by macro as well as company-specific factors. The stimulus measures and successful rollout of the vaccines have led to expectations of faster economic recovery and a rise in consumer spending. This will benefit a food and beverage giant like PepsiCo improve its sales and margins. The company has posted strong Q1 2021 results with impressive margins in the snacks category, which is generally consumed at home. For example, Frito-Lay margins came in at 29% in Q1. Additionally, the recent rally is also a reflection of the continued innovation at the company. With PepsiCo having benefited from the at-home consumption trend, it has recently introduced the Neon Zebra – part of the non-alcoholic cocktail mixer category – in four different flavors, to capitalize on the pick-up in the at-home cocktail making trend. It also launched a new juice product line (Frutly) for its young consumer base.  New launches to take advantage of the latest consumption trends, and when the economy is set to recover, have led to expectations of healthy revenue and earnings growth in the coming quarters.

But will PepsiCo’s stock continue its upward trajectory over the coming months, 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 PEP stock average close to 4.6% in the next one-year (252 trading days) period after experiencing a 12% rise over the previous one-year (252 trading days) period. But how would these numbers change if you are interested in holding PEP 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 PEP 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!

MACHINE LEARNING ENGINE – try it yourself:

IF PEP stock moved by -5% over five trading days, THEN over the next 21 trading days, PEP stock moves an average of 4 percent, with a 68% probability of the stock giving positive return in the next one month.

Some Fun Scenarios, FAQs & Making Sense of PEP Stock Movements:

Question 1: Is the average return for PepsiCo stock higher after a drop?

Answer:

Consider two situations,

Case 1: PepsiCo stock drops by -5% or more in a week

Case 2: PepsiCo stock rises by 5% or more in a week

Is the average return for PepsiCo stock higher over the subsequent month after Case 1 or Case 2?

PEP stock fares better after Case 1, with an average return of 4.1% 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 0.5% 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 PepsiCo stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold PepsiCo 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 PEP 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?

Answer:

The average return after a rise is understandably 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.

PEP’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 PepsiCo stock by changing the inputs in the charts above.

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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