Coca-Cola Just Made a New All-Time High. History Says This Is What Happens Next.

You might say that The Coca-Cola Company (NYSE: KO) is on a sugar high. Its shares recently reached an all-time high. Of course, much of Coca-Cola's revenue now comes from beverages that don't use sugar as a sweetener, so the sugar high reference might not be the best one to use.

Coca-Cola is soaring at a time when uncertainty reigns. CNN's Fear and Greed Index now shows an investor sentiment of "extreme fear." Inflation is resurging. The Federal Reserve is raising interest rates.

Will these factors derail Coca-Cola's momentum? Here's what history shows when this blue chip stock hits an all-time high.

Image source: Getty Images.

Does Coca-Cola's stock tend to keep popping or fizzle out?

Some investors are afraid to buy a stock after it reaches a new high. The fear is that the share price will fall in a reversion-to-the-mean scenario. But is this concern warranted with Coca-Cola? Sometimes, but not usually.

Look at the chart below showing Coca-Cola's historical stock performance. There are some cases of the stock reaching a record high only to pull back sharply afterward. For example, this happened in July 1998.

KO data by YCharts

However, it's also important to note that Coca-Cola repeatedly broke previous record highs in that run-up to that 1998 peak. We saw the same thing after the steep sell-off of early 2020 during the COVID-19 pandemic. The stock set record high after record high.

Is Coca-Cola's valuation a major worry for investors now, though? I don't think so. The beverage giant's shares trade at roughly 25 times forward earnings. That's lower than Coke's average trailing 12-month earnings multiple over the past five years.

Still a solid pick

History shows that when the stocks of quality businesses set all-time highs, they tend to lead to more all-time highs. Some Wall Street analysts think that Coca-Cola will follow this pattern. For example, UBS' (NYSE: UBS) Peter Grom and Jefferies' (NYSE: JEF) Kaumil Gajrawala each set a 12-month price target that reflects a 12% potential upside for the consumer staples stock.

In most previous instances when investors thought Coca-Cola was too expensive to buy, they were proved wrong. I suspect that history will repeat itself.

Even if Coca-Cola's shares do pull back, the stock pays you to wait. Its forward dividend yield stands at around 2.3%. Coca-Cola is also a member of the Dividend Kings, an elite group that has increased its dividends for at least 50 consecutive years.

If you're a long-term investor, I think that Coca-Cola remains a solid pick.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.