One company that looks to be resilient amid inflation is PepsiCo (NASDAQ:PEP). The drink and snack company has been able to manage the challenging macroeconomic conditions simply by raising its prices. Although there have been some signs that consumers are shifting away from its products, volumes continue to grow and so do the company’s sales.
On Oct. 10, the company reported its third-quarter numbers and net revenue grew at a rate of 6.7%. And when stripping out the impact of foreign exchange, the organic growth rate was even higher at 8.8%. The business is doing so well that management has upgraded its guidance for earnings growth. The company projects that its core EPS (at constant currency) will rise by 13%, which is higher than the 12% that PepsiCo was previously forecasting.
CEO Ramon Laguarta on the company’s versatility: “We believe that our businesses can continue to perform well in the coming years with category growth normalizing, as we have made numerous investments in our brands, manufacturing capacity, go-to-market systems, supply chain, technology, and people, to execute against our strategic framework and modernize our company.”
The one downside is that the stock is a bit pricey today, trading at more than 26 times its trailing earnings. While the business is doing well, that might be a high premium for a business that is growing in the single digits and which may face headwinds down the road. While price increases are enough to get the business growing right now, that may not be a sustainable strategy in the long run. And so while PepsiCo has done well in Q3, I wouldn’t buy the stock at its current valuation as it is down 12% this year and it could fall further.
