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With a wide range of different brands, like its namesake soft drink, Dasani water, Powerade and Bodyarmor sports drinks, and vitaminwater, among many others, Coca-Cola (NYSE: KO) is certainly a household name. The business has a presence in more than 200 countries and territories across the globe.
Investors might have their eyes on this beverage stock because Warren Buffett-led Berkshire Hathaway is a sizable shareholder. Plus, it might help that the business posted better-than-expected third-quarter financial results.
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Should you buy this top Buffett stock right now?
Coca-Cola's Q3 financial results
Last week, Coca-Cola reported its financial results for the three-month period that ended Sept. 27. It beat Wall Street's expectations on both the top and bottom lines. Net revenue totaled almost $11.9 billion. This was down 1% year over year, as unit case volume worldwide dipped 1%.
However, Coca-Cola continues to prove that it has pricing power. Last quarter, management highlighted that prices rose by 10%, helping non-GAAP (adjusted) organic revenue jump 9%. That's a great trend because it shows that Coca-Cola can successfully navigate inflationary pressures. The great Warren Buffett has said before that he believes the mark of an outstanding company is the ability to raise prices without any pushback from customers.
Asking consumers to pay more for its beverages is only possible because Coca-Cola possesses such a powerful brand. This comes from decades of serving a consistent product offering that customers have grown accustomed to, as well as from the support of effective marketing campaigns.
That brand is exactly what makes up Coca-Cola's economic moat. While any well-funded and motivated entrepreneur can create a competing soft drink start-up, there is likely zero chance it will ever become a threat to Coca-Cola. And by operating in a stable and boring industry, this company faces almost no risk of disruption. Coca-Cola is a very durable and long-lasting enterprise.
The brand also supports Coca-Cola's impressive profitability. Charging high prices flows through the income statement, which has resulted in an operating margin that has averaged a superb 26.8% in the past 10 years. That's only 1 percentage point below the average of Apple, one of the most profitable enterprises on Earth.
Don't expect huge returns
In the past five years, Coca-Cola has produced a total return of 44%. That lags the 109% total return of the broader S&P 500 by an extremely wide margin. This is disappointing for investors looking for the chance to achieve much higher gains.