Economic worries, prompted by ongoing uncertainty about how tariff announcements will ultimately play out, are scaring investors. The benchmark S&P 500 index has lost 8% of its value in 2025 (as of April 14).
Not all businesses have fared as poorly. Look at Coca-Cola (NYSE: KO). The global beverage giant has seen its shares rise 17% this year thanks to steady financial performance that investors might appreciate more these days.
In times like now, it's reassuring to know that Coca-Cola can raise prices on its products. But will pricing power, a fantastic trait for any business to have, help the beverage stock soar? History provides the answer.
Coca-Cola dominates the industry
Legendary investor Warren Buffett likes to own companies that have an economic moat. Coca-Cola easily falls into this category. Credit goes to the soft drink enterprise's powerful brand presence, which is the most critical asset contributing to its success.
Coca-Cola has a huge product portfolio with various drinks to cater to numerous tastes and preferences. It has a long operating history spanning over 100 years. The company is a leader when it comes to marketing efforts. And perhaps most importantly, Coca-Cola has loyal customers who have developed an affinity toward the brand.
Buffett has even previously expressed his view that Coca-Cola essentially sells happiness. Think about how strongly the business and its products resonate with consumers all over the world. Coca-Cola faces almost no threat of obsolescence.
Being in an advantageous competitive position affords Coca-Cola the ability to increase prices. In 2024, the leadership team reported a 9% benefit from favorable pricing and mix, for example. In an inflationary environment, especially with the threat of tariffs, this somewhat insulates the business from cost pressures.
What investors should expect
Coca-Cola's pricing power isn't a new discovery among the investment community. It's a well-known characteristic. While this is a high-quality business with a strong brand, exceptional profitability, and a low threat of disruption, pricing power likely won't propel the stock to outperform.
Over the past decade, shares of Coca-Cola are up 78% (excluding dividends). In comparison, the S&P 500 has climbed 160%. During that 10-year stretch, Coca-Cola flexed its pricing power on many different occasions. Nonetheless, the stock failed to outperform the broad benchmark.
This makes it hard to believe that Coca-Cola can achieve market-beating returns going forward. Yes, management can continuously ask consumers to pay a little more for its drinks, a strategy that has been employed in the past. However, that doesn't mask the company's muted growth potential.
Coca-Cola serves 1.9 billion servings of its products daily. It has a presence in a whopping 200 countries and territories. It's ubiquitous, with every market and distribution channel likely being fully penetrated.
Keep the long term in mind
Coca-Cola's growth going forward will probably mimic broader GDP trends. It's worth pointing out that in the last decade, Coca-Cola's revenue rose at a compound annual rate of just 0.2%.
This stock is having a wonderful year thus far. However, over the long term, which is the time frame every investor should focus on, Coca-Cola isn't going to soar. I'd bet that the stock keeps lagging the S&P 500 over the next 10 or 20 years.
This doesn't mean the company isn't a worthy investment candidate. Some investors love owning businesses that cut them a check every quarter. Coca-Cola can be a smart choice for dividend investors. It has raised its dividend in 63 straight years, and the current yield stands at a healthy 2.8%.
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Neil Patel and his clients have 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.
