PepsiCo, Inc. (NASDAQ:PEP) is not really a soda company, at least not in the traditional sense. There is much more going on under the hood. In 2025, around 58% of its revenue came from food, while beverages accounted for the other 42%. The U.S. made up 56% of revenue, with international markets contributing the remaining 44%.
And the list of brands is hard to miss. Pepsi, Gatorade, Lay’s, Doritos, Cheetos, and plenty of other household names sit under the PepsiCo umbrella. This mix is important when looking at the stock’s valuation. PepsiCo is the kind of business investors often turn to when they want something a little less dependent on the economic cycle. If times get tough, consumers might put off buying a new TV or car. They are not likely to stop buying chips, soda, and other everyday products altogether. That’s a big part of PepsiCo’s appeal.
However, there is a flip side. You get stability, but you are not getting a business that is growing by leaps and bounds. That trade-off is becoming more important because PepsiCo’s valuation has come down quite a bit. The stock now trades at about 17.6 times trailing earnings and 14.9 times forward earnings. At the end of 2025, those multiples were around 27.3 times and 16.8 times, respectively. The forward P/E also touched roughly 18 times in March 2026.
So, investors are paying much less for PepsiCo’s earnings than they were before. At 14.9 times forward earnings, PEP has an earnings yield of roughly 6.7%. When the stock was trading at 27 times earnings, that yield was only about 3.7%. That’s a pretty big difference. Still, a stock becoming cheaper doesn’t automatically make it a bargain.
PepsiCo isn’t exactly firing on all cylinders
The business itself has been growing, but not at a particularly exciting pace. PepsiCo’s revenue went from $86.4 billion in 2022 to $93.9 billion in 2025. That’s roughly 8.7% growth over three years, or around 2.8% a year. In 2025, the growth was even slower than usual. Revenue increased just 2%, while core EPS was basically flat at $8.14, compared with $8.16 a year earlier.
Profitability also took a hit. Reported operating profit fell 11% in 2025, with higher commodity costs, weaker organic volumes, and impairment charges all playing a role. This goes a long way toward explaining what happened to the stock’s multiple. Investors will happily pay a premium for a dependable business. But there is a limit to how much they are willing to pay when the earnings aren’t really moving. PepsiCo, Inc. can still be a steady ship, but investors don’t want to pay a first-class price for second-gear growth.
The outlook gives investors something to work with
The picture isn’t all doom and gloom. PepsiCo, Inc. expects organic revenue growth of 2% to 4% in 2026, while core constant-currency EPS is expected to grow 4% to 6%. Depending on foreign exchange and other factors, management expects reported core EPS growth of around 5% to 7%. That makes the current valuation more interesting.
At around 15 times forward earnings, investors aren’t being asked to pay an arm and a leg for that level of growth. PepsiCo also pays an annualized dividend of $5.92 per share after raising the payout by 4% in 2026. Based on the current share price, that’s a dividend yield of roughly 4.6%. So, investors are getting paid while they wait. The potential return basically comes down to two things: the dividend and earnings growth. If PepsiCo can actually deliver 4% to 6% EPS growth and keep increasing its dividend, the setup looks quite different at 15 times earnings than it would at 20 or 25 times. That’s where the lower valuation starts to matter.
And then there’s the bond market
Interest rates make the valuation story a little trickier. A few years ago, defensive stocks had a pretty easy sell. Interest rates were low, and safe investments didn’t offer much income. Investors were therefore more willing to pay a premium for companies that could provide dependable earnings and dividends. The story has changed now. With long-term Treasury yields around the 5% range, PepsiCo can’t simply point to its dividend and call it a day. Its roughly 4.6% dividend yield is actually below what investors can get from Treasuries.
Of course, a Treasury and PepsiCo are not the same thing. A Treasury doesn’t offer the potential for earnings growth or share-price appreciation. But it also doesn’t come with the same equity risk. That’s why the earnings yield matters. At about 15 times forward earnings, PepsiCo offers an earnings yield of roughly 6.7%. That’s a much better starting point than the roughly 4% yield investors were getting when the stock traded at 25 times earnings. In simple terms, investors are getting more earnings for every dollar they put into the stock.
So, is PepsiCo cheap?
It’s certainly cheaper. The harder part is figuring out whether it is cheap enough. PepsiCo, Inc. isn’t suddenly going to turn into a high-growth company. Revenue growth remains modest, recent earnings have been under pressure, and the company still has to deal with commodity costs, consumer spending pressures, and challenges in its North American business. Volumes and pricing remain areas investors are watching closely. But valuation has changed the equation.
A stock trading at roughly 15 times forward earnings with a 4.6% dividend yield and expected mid-single-digit EPS growth is a very different proposition from one trading above 20 times earnings. That is really what investors need to focus on. The question isn’t whether PepsiCo is a great business. It has already proved that it can be a durable and resilient one. The question is what price investors are willing to pay for that stability.
At today’s valuation, PEP has a much lower bar to clear than it did when the stock was trading at a much richer multiple. But with Treasury yields still competitive, investors have alternatives. PepsiCo therefore needs to offer more than just a familiar brand portfolio and a reliable dividend.
For the current valuation to make sense, the combination of dividend income, earnings growth, and potential share-price appreciation needs to provide enough upside to justify taking on the additional risk that comes with owning an equity. That’s the real debate around PepsiCo today.
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This article is originally published at Insider Monkey.
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