Is PepsiCo Stock a Buy, Sell, or Hold in 2025?

Like an open can of soda left out overnight, PepsiCo (NASDAQ: PEP) stock has lost its fizz lately -- it's down by about 15% over the past year at the time of this writing. Though it has delivered consistent earnings growth, the combination of muted guidance for the year ahead and rising uncertainties about the outlook for the U.S. economy are weighing on the beverages and packaged foods giant.

Does the stock's current weakness point to more downside ahead, or are there good reasons for investors to stay optimistic?

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The case to buy or hold PepsiCo

A reality of investing is that even the best companies sometimes get caught up in stock market volatility. However, investors need to focus on the big picture and not lose sight of a company's long-term potential, especially when its fundamentals remain solid. This is the case with PepsiCo, which continues to capitalize on its diverse product portfolio, which includes iconic brands such as Pepsi, Lay's, Doritos, Quaker Foods, Gatorade, Rockstar Energy, and Aquafina.

PepsiCo's financial trends were solid in 2024. The company effectively executed pricing initiatives to achieve a 2% increase in organic revenue for the year. Core earnings per share (EPS) rose 9% to $8.16 -- a company record. Operations in Europe and Latin America were growth drivers, balancing mixed results from its North America segment.

This geographic diversification is particularly important in the current market environment, where many companies face potential disruptions as the Trump administration prepares to implement tariffs on imports into the United States.

While PepsiCo does import certain raw materials such as cocoa, spices, and tropical fruits, the direct financial impact on it from those higher costs in the domestic market is expected to be small. Additionally, ongoing efforts aimed at streamlining the business and improving supply chains should support its profit margins.

For 2025, management is guiding for organic revenue growth in the low-single-digit percentages and a mid-single-digit percentage increase in core EPS.

This outlook is compelling considering that PepsiCo stock is trading at its cheapest valuation in the past five years on a forward price-to-earnings (P/E) basis. Shares now trade at 18 times the consensus EPS estimate for 2025, a significant discount to the company's average earnings multiple since 2020, which is closer to 26. As such, there's a strong case to be made that the stock is undervalued, assuming PepsiCo stays on track to achieve its financial targets.

PEP PE Ratio (Forward) data by YCharts.

The company's quarterly dividend payment of $1.36 per share, which yields 3.6% at the current share price, reinforces the view that the stock is a bargain. That's its highest yield in a decade, yet the distribution is well supported by the company's underlying free cash flow. There are ample reasons to consider buying and holding shares for the long run, particularly for investors who are confident that PepsiCo's current weakness is temporary.

PEP Dividend Yield data by YCharts.

The case to sell PepsiCo stock

Even when a stock looks cheap, there's always the risk that it can fall further, so investors should habitually examine potential investments closely to ascertain what could go wrong.

A scenario in which economic conditions deteriorate, weakening demand for PepsiCo products and leading to worse-than-expected results, would force a reassessment of the company's earnings trajectory and put pressure on the stock.

More broadly, investors may see a shift in consumer habits toward not only healthier snacks but also more affordable food options. PepsiCo has struggled to manage soft unit volume trends in its Frito-Lay and Quaker Foods North America divisions. The sales issues present an ongoing operating and financial headwind.

Investors who believe PepsiCo is past its peak growth and will gradually lose market share may want to consider selling the stock or avoiding it for now.

Decision time: Time to take a bite

This will be a pivotal year for PepsiCo to reaffirm its market potential and reinvigorate investor sentiment. I'm bullish about the company, and believe its current stock price offers a buy-the-dip opportunity. PepsiCo remains a consumer goods blue chip stock, and its combination of value and long-term growth potential positions it well to reward shareholders.

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Dan Victor has 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.