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[Vinayak 10]

PepsiCo: Substantial and Growing Dividends

 

This seems like a good time to buy more PepsiCo Inc. (PEP) stock at $82.58 a share. The EV/EBITDA offers further verification for investors. The EV/EBITDA is the enterprise multiple and it takes into account a company's debt and cash levels in addition to its stock price and relates that value to the firm's cash profitability. The enterprise multiple is seen as the most encompassing and generally considered the most useful in analyzing the current valuation of a stock.

 

Earnings Before Interest, Taxes, Depreciation, and Amortization [EBITDA] is often more desirable than P/E because it is considered less docile than earnings and P/B because it is a better measure of cash profitability than book value. However, it is not without its flaws.

 

Taking out interest, taxes, depreciation and amortization can make even completely unprofitable companies appear to be financially healthy. A look back at the dotcoms offers numerous examples of firms that actually had no future, no hope and certainly no earnings, but became the darlings of the investment world.

 

It is always best to look at several different multiples. Still, the EV/EBITDA gives a good picture about the value of a stock like PEP.

 

After considering the relatively low EV/EBITDA value of 12.58, options traders might look to buy calls on PEP with near to mid-term expirations. This may also be a good time for value investors to dollar cost average on PEP stock.