Will the boom in alcoholic beverages continue to boost the morale of Coca-Cola investors?

Coca-Cola (KO 1.44%) The stock has performed well this year, with the soda maker continuing to deliver strong revenue and earnings growth, thanks in large part to strong pricing power. The stock is now up more than 20% year-to-date through 2024.

To revive its growth, the company is now turning to alcoholic beverages to boost its sales. Let’s take a look at the company’s strategy and see if the stock could be a buy at current levels.

Expanding its range of alcoholic beverages

Known for its iconic Coca-Cola soda brand, Coca-Cola has long been a leader in many other beverage categories, including juice, water, sports drinks and even coffee. Its most popular brands in these categories include Minute Maid, Dasani, Powerade, Vitaminwater and Costa.

However, the company is only just beginning to dabble in the alcoholic beverage category, through its subsidiary Red Tree Beverages. While Coca-Cola has been experimenting with alcoholic beverages in Japan since 2018, it began to move into the sector on a larger scale a few years ago.

First, it launched a hard version of its Topo Chico Seltzer in 2021, then followed that up the following year by partnering with the maker of Jack Daniels. Foreman Brown to create a ready-to-drink version of the Jack and Coke cocktail in a can and with Molson Coors on Simply Spiked Lemonade.

This year, the company added several new alcoholic beverages to its lineup. It partnered with Pernod Ricard to create a canned cocktail made with Absolut vodka and Sprite, which it introduced in several European countries. In the first half of this year, it also launched Minute Maid Spiked in the United States. The wine-flavored cocktails will be sold in 1.5-liter bottles and will be available in lime margarita, strawberry daiquiri and pina colada flavors.

Earlier this month, the company announced it was partnering with Bacardi on a ready-to-drink version of its canned rum and Coke. The drinks will initially be available in select European countries and Mexico next year. It also announced a limited-time drink, Jack and Cherry Coke.

Coca-Cola’s foray into pre-mixed alcoholic cocktails makes perfect sense. Many of its mixed drinks are already popular in bars, so this is a natural extension for the company. Additionally, pre-mixed alcoholic cocktails are one of the fastest-growing beverage categories. According to the Distilled Spirits Council of the US, the category grew nearly 27% in the US and ranked as the fifth-best-selling spirits by revenue, with $2.8 billion in sales by 2023.

Is Coca-Cola Stock a Buy?

There’s a reason why Coca-Cola has long been one of famed investor Warren Buffett’s biggest holdings. The company has one of the most recognizable brands in the world, and that brand equity is extremely valuable. It’s also helped give the company a great deal of pricing power.

The company’s case volume growth has been relatively modest of late. Last year, unit case volume growth was just 2% and it has seen a similar increase so far this year, with growth of 1% in the first quarter and 2% in the second quarter. However, the company has seen strong revenue growth, with organic revenue growth of 15% in the second quarter, driven by a 9% increase in price and mix, and organic revenue growth of 11% in the first quarter, driven by a 13% increase in price and mix.

KO Price-to-Earnings Ratio (1-Year Forward) data by YCharts

Given the strength of its brand and the defensive nature of its business, Coca-Cola stock generally trades at a healthy valuation multiple. Its current forward price-to-earnings (PE) ratio is below 24, which is where the stock has often traded over the past few years.

While it’s not in the bargain category, Coca-Cola is a solid growth play, and if alcohol sales can help drive its sales up in the coming years, it looks like an attractive option for investors at current levels.

Coca-Cola’s pricing power, combined with its expansion into ready-to-drink alcoholic cocktails, makes for an intriguing mix that should help drive growth in the years ahead.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.