Legendary investor Warren Buffett remains a firm believer in Coca-Cola (NYSE:KO). The Oracle of Omaha’s latest letter to shareholders revealed that his company, Berkshire Hathaway (NYSE:BRK-A), which was already Coca-Cola’s single largest institutional investor, has seen its stake grow in the iconic beverage maker.
In his annual letter to shareholders, Warren Buffett wrote that Berkshire Hathaway’s stake in Coca-Cola has grown from 9.2% to 9.3%, entirely due to buybacks which decrease the total number of outstanding shares. Berkshire Hathaway’s ownership of Coca-Cola shares (number of shares) has remained unchanged for more than two decades except in cases of splits, etc.
The increase in stake seems insignificant until we expand our time horizon. In 1994, when Berkshire Hathaway bought an additional 26.4 million Coca-Cola shares to increase its ownership to 400 million shares, it owned 7.8% of the company. Since then, Warren Buffett has been sitting on the sidelines while Coca-Cola has been buying back stock. Since 2010, Berkshire Hathaway’s stake has grown by at least 0.1 percentage point each year. At this rate, it won’t be long before its stake increases to double-digits.
But on paper, it appears Coca-Cola’s performance has not been particularly impressive. The company’s earnings per share (EPS) growth rate has not been very consistent. Profits have been going downhill for the last two years. The annual performance of the Coca-Cola stock also lacks consistency when compared against the broader S&P-500. The stock has underperformed the S&P-500 in 4 out of the last eleven years.
Note: EPS growth as adjusted.
The poor run has particularly hit those investors who put their money in the Coca-Cola stock in the current decade. Since the beginning of 2010, the S&P-500 has gained 85.4%, but the Coca-Cola stock has lagged far behind, rising by just 50% in the same period.
