Coca Cola is an example of yet another stagnant business. What is interesting, investors do not seem to spot it. Let me look at Coca - Cola's basic financial measures. The chart below depicts cash flow from operations, excluding working capital issues. In other words, the chart shows how much cash is delivered by Coca - Cola's core business:
Well, it looks like the company entered a stagnation period, starting from 2011.
What is more, looking at the chart below, it seems that cash flow from operations has been the main driver of Coca - Cola share prices:
The red arrow indicates where the problem is. Between 2001 and 2011 Coca - Cola was steadily increasing its cash flow from operations and share prices were closely following this pattern. However, since 2011 the company was not able to increase its operating cash flow any longer.
Despite this fact, investors were eagerly buying its shares. In other words, share prices were going up without fundamentals.
Historically, if something is not backed by fundamentals it should correct.