PepsiCo’s Stock Decline: Examining Current Investment Opportunities

PepsiCo (NASDAQ: PEP) has seen a significant decline, with its stock price falling 30% from its peak in 2023. Currently, the consumer staples giant is navigating its own bear market. This downturn is attributed mostly to short-term issues, but it has raised concerns among some investors.

For long-term investors who focus on holding stocks for decades rather than days, this dip presents an opportunity to invest in PepsiCo Stock at a lower price. Delaying your investment could mean missing out on valuable buying opportunities. Here are three key reasons to consider buying PepsiCo now.

1. Attractive Dividend Yield

Dividend investors may find the current climate appealing, as PepsiCo’s share price decline has increased its dividend yield to over 4%. This is one of the highest yields in recent history, making it a significant factor for potential investors.

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A common guideline suggests that retirees can sustainably withdraw 4% of their assets annually without depleting their funds. If investors can achieve this solely from dividends, they can preserve their principal, significantly lowering the risk of outliving their money.

PepsiCo’s track record of raising its dividend for over 50 consecutive years indicates resilience during tough times. This established history suggests that its high dividend yield could present an attractive buying opportunity for long-term investors.

2. Favorable Valuation Metrics

Beyond a robust dividend yield, traditional valuation ratios like price-to-sales (P/S), price-to-earnings (P/E), and price-to-book value (P/BV) also paint a compelling picture of PepsiCo’s current pricing. At present, PepsiCo’s P/S ratio stands at approximately 2x, lower than its five-year average of about 2.7x. Its P/E ratio is currently at 19.6x, compared to a long-term average of around 26.6x. Lastly, the P/BV ratio is below 10x versus a five-year average over 13x. These metrics indicate that PepsiCo is historically undervalued at this time.

3. Navigating Adversity

While PepsiCo’s high dividend yield and favorable valuation are attractive, they also stem from significant challenges the company currently faces, including slowed growth and changing consumer habits. Despite these adversities, strong companies often endure through tough phases. Given its capability to maintain dividend payouts despite fluctuations over the past 50 years, it may be prudent to consider management’s strategies as they contend with current difficulties.

Management is proactively addressing issues by focusing on cost reductions and productivity boosts. Additionally, they are investing in product innovation and acquiring targeted brands such as Siete and Poppi to better align with consumer preferences. While these adjustments won’t lead to immediate results, they are crucial steps forward for a return to the brand’s historical success.

Potential for Volatility Ahead

Investing in PepsiCo today, even amidst negative headlines, could yield reliable dividend income for the long haul. However, this strategy requires a willingness to buy when prices are low, which can be a challenge. It is possible that investors might still witness price declines as the company navigates through its current struggles. If hesitation is an issue, consider starting with a smaller position and gradually increasing it over time. This approach allows you to enter the market while capitalizing on what might be one of the best opportunities in the food sector today.

Should You Invest $1,000 in PepsiCo Now?

Before committing to a purchase of Stock in PepsiCo, take the following into account:

The Motley Fool Stock Advisor analyst team has identified what they consider to be the 10 best stocks for investment now, and PepsiCo is not included in that list. The chosen stocks have the potential to deliver substantial returns in the future.

For example, if you had invested $1,000 in Netflix when it made the list on December 17, 2004, you would have $607,048 today!

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Currently, Stock Advisor‘s total average return stands at 880%, significantly outperforming the S&P 500, which is at 161%.

Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.