Is PEP a good stock to buy?We came across a bullish thesis on PepsiCo, Inc. on Investing Lawyer's Substack. Since the thesis was published on June 26th, PEP shares have pulled back as investors remain cautious about the pace of its recovery, creating a near-term headwind while its dividend continues to support the income-focused bullish case. In this article, we will summarize the bulls' thesis on PEP. PepsiCo, Inc.'s share was trading at $132.63 as of October 28th 2026. PEP's trailing and forward P/E were 16.79 and 15.47 respectively according to Yahoo Finance.
This isn't the first time we see a food and beverage company pitched as a great investment. Unfortunately, PEP shares lost 10.11% of their value over the last 12 months. Comparable stocks like Coca-Cola and Keurig Dr Pepper gained 32.98% and 26.19%, respectively, during the same period. PEP's weaker performance may partly reflect its slow North American recovery, where softer beverage demand and pressure on profits prompted a cut to its annual earnings outlook. Why is PEP falling while its beverage peers rise and has that gap created a buying opportunity or a reason for caution?
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In June, we published an article about the 10 Best Dividend Stocks to Buy for Passive Income and PEP ranked #2 in that article. Btw, the #1 stock in that list returned 6.43% since then. So, hedge funds were right about their #1 pick but PEP, which lost ground since then, was a disappointment. This article highlights PEP among the 9 Best Quality Stocks to Buy According to Wall Street Analysts. Before getting into our analysis, let's take a look at the business and why some investors like the stock so much.
PepsiCo, Inc. (NASDAQ:PEP) is one of the world's largest consumer staples companies, with a business spanning both beverages and snack foods. This mix matters because PepsiCo does not rely on just one category to make money. Its well-known global brands and steady everyday demand give the stock a defensive character, making it more appealing to investors who want reliable income rather than fast growth. PepsiCo currently pays a dividend yield of about 4.0% and has raised that dividend for 54 straight years, putting it in the elite group known as Dividend Kings. In simple terms, people don't buy PepsiCo stock hoping for a huge growth story. They buy it for steady earnings, consistent cash flow, and a dividend that keeps growing year after year.
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The bullish argument centers on PepsiCo's dual exposure to both beverages and snacks, something that sets it apart from Coca-Cola Company (NYSE:KO). Both companies have iconic brands that are part of everyday life, but PepsiCo has a second major business, snacks, that can help cushion the company if one part of its business slows down. So investors get broader diversification than with Coca-Cola Company, while still enjoying many of the same defensive, staples-like qualities.
PepsiCo's brand strength also supports the idea that the company can stay relevant for decades, not just a few years. Consumer tastes will always shift, and individual products may rise or fall in popularity, but PepsiCo's size and variety of brands make the overall business sturdier than any single product line. As long as the company keeps adjusting its offerings while defending its market position, the bullish view holds: dependable cash flow and shareholder payouts should continue well into the future. The idea isn't that every Pepsi product stays popular forever, it's that people will keep buying beverages and snacks, and PepsiCo will keep capturing that demand.
This case is reinforced by PepsiCo's remarkable dividend history. Raising its payout every year for more than five decades, through recessions, inflation, and shifting consumer habits, shows real staying power. Importantly, this isn't an unusually high yield that might signal financial trouble. Instead, it reflects a stable, well-run business that has consistently rewarded shareholders. For income-focused investors, that combination of steady payout growth and long-term brand strength is the main appeal.
That said, being a defensive stock doesn't guarantee outperformance. As a mature company, PepsiCo isn't likely to grow as fast as younger, smaller businesses, so its success depends more on steady, reliable execution than rapid expansion. The company still needs to grow earnings and cash flow enough to keep supporting future dividend increases. If growth stalls for too long, future dividend hikes could shrink, and the stock's price gains could disappoint. In short, investors are trading faster growth for greater stability and a long, proven track record of shareholder payouts. Strong brands lower this risk but don't remove it entirely, PepsiCo still needs consistent business growth to keep the dividend story intact ( see why PepsiCo's dividend growth makes free cash flow worth watching ).
Another risk for the stock is that health-related regulation pressures both snacks and beverages at the same time. PepsiCo's diversification offers less protection when governments target ingredients used across its portfolio. Its annual report identifies taxes on sweetened drinks and certain snacks, alongside labeling requirements and restrictions on marketing or sales. Higher taxes could force PepsiCo to choose between raising prices and absorbing the cost through lower margins. Reformulating products would require investment and carries the risk that consumers dislike the changes. These pressures could weaken cash generation even while people continue buying snacks and drinks regularly. In our opinion, the dividend growth story becomes less attractive if adapting the portfolio absorbs more cash while reducing the profitability of established brands.
Hedge fund positioning shows a mixed but cautious signal. As per our database, 68 hedge fund portfolios held PepsiCo, Inc. at the end of the second quarter, down from 72 in the previous quarter. This modest decline suggests institutional interest softened slightly, even as PepsiCo's diversified business and long-term dividend appeal remain central to its investment case. By comparison, Coca-Cola Company was held by 90 hedge funds, up from 76, Keurig Dr Pepper Inc (NASDAQ:KDP) was held by 47 hedge funds, up from 43, and Mondelez International was held by 63 hedge funds, up from 55. Coca-Cola Company stood out with the strongest increase in hedge fund interest, followed by Mondelez International Inc (NASDAQ:MDLZ) and Keurig Dr Pepper, while PepsiCo was the only company to see a decline, suggesting institutional enthusiasm strengthened for its peers as interest in PepsiCo cooled.
Short interest data also paints a fairly calm picture for PepsiCo, Inc. relative to its peers. About 2.25% of PepsiCo, Inc.'s float is sold short, higher than The Coca-Cola Company at 1.16%, but slightly below Mondelez International, Inc. at 2.52% and well below Keurig Dr Pepper Inc. at 6.89%. This suggests PepsiCo, Inc. is drawing more skepticism than The Coca-Cola Company, but bearish bets remain less aggressive than those against Mondelez International, Inc. and Keurig Dr Pepper Inc.
Valuation Analysis
PEP's forward P/E is 15.47x. The Coca-Cola Company, Mondelez International, Inc., and Keurig Dr Pepper Inc. trade at forward P/Es of 26.04x, 18.56x, and 13.68x, respectively. PEP's own forward P/E was 15.74x on December 31, 2025, making its current multiple approximately 2% lower. We believe the current valuation reflects significant investor concerns about subdued consumer demand, modest earnings growth, and the cash needed to sustain dividend increases. However, the discount to Coca-Cola and Mondelez appears meaningful given PepsiCo's diversified beverage and snack portfolio, although its higher multiple than Keurig Dr Pepper means it is not the cheapest stock in the group. PepsiCo's core earnings per share increased from $5.88 to $6.15 over the first three quarters of 2026, representing approximately 5% growth and supporting its appeal as a steady earnings compounder. We believe PEP can justify its current valuation without accelerating beyond this growth rate if margins remain resilient and cash flow adequately covers reinvestment and dividends. If PepsiCo protects its market share and translates steady earnings growth into sustainable increases in shareholder payouts, the current valuation could offer an attractive entry point despite the risks surrounding weaker consumer spending and dividend coverage.
Previously, we covered a bullish thesis on PepsiCo, Inc. (PEP) by Kroker Equity Research in October 2024, which highlighted pricing power, dividend growth, Celsius partnership, and modest undervaluation. PEP's stock price has depreciated by approximately 24.12% since our coverage. We believe the current valuation could offer an attractive entry point if PepsiCo sustains earnings growth and generates enough cash to fund dividends and reinvestment, despite softer consumer demand and regulatory risks.
PepsiCo is not on our list of the 40 Most Popular Stocks Among Hedge Funds . While PEP could offer long-term returns through steady earnings growth and dividend increases, we believe some AI stocks offer stronger long-term potential, with a high probability of delivering superior returns on a much shorter timeline. If you are looking for an AI stock that is more promising than PEP and that has 10,000% upside potential, check out our report about this cheapest AI stock .
Disclosure: None.
