Is The Coca-Cola Company (KO) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does The Coca-Cola Company (NYSE:KO) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell The Coca-Cola Company (NYSE:KO)’s story, and we’ll be grading the quality of that story in several ways:

• Growth: Are profits, margins, and free cash flow all increasing?
• Valuation: Is share price growing in line with earnings per share?
• Opportunities: Is return on equity increasing while debt to equity declines?
• Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at The Coca-Cola Company (NYSE:KO)’s key statistics:

KO Total Return Price data by YCharts

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	49.8%	Pass
Improving profit margin	(22.6%)	Fail
Free cash flow growth > Net income growth	13.7% vs. 15.9%	Fail
Improving EPS	18.8%	Pass
Stock growth (+ 15%) < EPS growth	76.2% vs. 18.8%	Fail

Source: YCharts. * Period begins at end of Q2 2010.

KO Return on Equity data by YCharts

Passing Criteria	3-Year* Change	Grade
Improving return on equity	(12.1%)	Fail
Declining debt to equity	141.3%	Fail
Dividend growth > 25%	27.3%	Pass
Free cash flow payout ratio < 50%	59.5%	Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
The Coca-Cola Company (NYSE:KO) puts together a rather underwhelming performance for such a rock-solid dividend payer, as it’s only earned three out of nine possible passing grades. However, one of those failing grades happened due to the narrowest under-performance — free cash flow has certainly grown along with net income, and could pull ahead over the next few quarters. Despite promising revenue growth, higher costs have put the pinch on The Coca-Cola Company (NYSE:KO)’s profit margins, which has hampered it somewhat today. Let’s dig a little deeper to see whether The Coca-Cola Company (NYSE:KO) can turn these issues around.