Consider this Part III of a series of blogs about the perennial philosophy: buy high quality companies and hold them for the long term. I’ve linked to the previous two at the bottom of this post.
Pepsi (PEP) reported stellar earnings this morning and the stock is up more than 2% and at all time highs. Organic revenue was +14% and they raised their full year guidance to +8% (from +6%). They also increased their full year 2023 Core EPS guidance marginally to $7.27 (from $7.20). Clearly PEP is firing on all cylinders.
But there are a couple of reasons I’m tempted to sell. One, when I look at that chart I get nervous. The stock is on a tear. How much higher can it go? The other reason is valuation. PEP is now trading at 26x guidance ($190 / $7.27 = 26x). That’s getting expensive.
But – as I’ve hammered home in the previous two blogs in this series – high quality companies are expensive because they deliver. As a result, they grow into their valuation and continue going higher. So – despite these reservations – I’m holding onto my PEP shares.
“PG And The Investment Lesson You Must Learn”, April 21, 2023
“KO And The Perennial Philosophy”, April 24, 2023